Alan John and Stella Qiu
LONDON/SYDNEY (Reuters) – Global shares held near all-time highs on Tuesday and the dollar slipped as investors awaited inflation data on both sides of the Atlantic due later this week.
Traders had been eyeing the move to shorter settlement in US trading, but there were several important moves ahead of the US market opening.
Investors in U.S. stocks and other securities should settle their trades one business day after the trade, rather than two from Tuesday.
Most asset classes, with the exception of commodities, have traded in fairly tight ranges in recent weeks, with major stock indexes near record highs, European bond yields rising slowly and the dollar gradually weakening against its major peers.
Data on US PCE inflation and CPI inflation in the major eurozone economies this week are the main factors that could distract markets from their current thinking, influencing expectations for when major central banks will start cutting rates. Eurozone inflation data will be published on Wednesday, followed by PCE on Friday.
“If you want big moves, you need to get away from the idea that the US’s next move is a march into market consciousness,” said Keith Jax, chief currency strategist at Societe Generale (OTC:).
Although he was referring to the dollar, there is a strong correlation between assets at the moment.
“We were there at the end of the first quarter when we were bombarded by stronger-than-expected U.S. numbers, but that all kind of melted away and we found ourselves in no man’s land,” Jax said.
Markets are now fully pricing in one 25 basis point Fed rate cut this year, most likely in September or November. They see the possibility of a second cut of 25 bps. by the end of the year approximately one third.
In the eurozone, it is almost certain that the European Central Bank will cut rates at its meeting next month, although markets are fully pricing in only one further cut by December.
Of interest to policymakers, eurozone consumers lowered their inflation expectations last month, a fresh ECB survey showed on Tuesday.
The MSCI world share index was flat on the day, while the overall European share index fell 0.25%, both close to record highs hit this month. Earlier in the day, Asian shares traded broadly stable, while U.S. stocks rose 0.14%.
Emerging markets were also in focus, with Zambia likely to emerge from a prolonged default after the country’s finance ministry said more than 90% of holders of its $3 billion worth of outstanding international bonds had so far accepted its restructuring proposal.
Watching Japan
Additionally, data on Tuesday showed that all of the Bank of Japan’s key core inflation measures fell below the 2% target in April for the first time since August 2022, adding to uncertainty about the timing of the central bank’s next interest rate hike.
But investors appear to be paying more attention to comments made Monday by Bank of Japan Deputy Governor Shinichi Uchida, who said the end of Japan’s battle with ongoing deflation is near. Japan’s 10-year government bond yield rose to 1.035% on Tuesday, its highest level since April 2012. [JP/]
That helped the yen strengthen to 156.7 per dollar, although the Japanese currency fell to its weakest level in years against the pound and the Australian dollar.
The euro was last up 0.2% against the dollar at $1.0882. [FRX/]
The Treasury cash market returned after the holiday, with prices recovering slightly from last week’s decline.
The two-year yield fell 3 basis points to 4.922%, up 13 bps. the previous week, and the 10-year yield fell 1 bps. to 4.457% after an increase of 5 bp. a week earlier.
Oil prices continued to rise compared to the previous session. futures jumped to $83.23 per barrel. July futures were at $79.13 a barrel, up 1.4% from Friday’s close, as trading was held over the U.S. Memorial Day holiday without settlement. [O/R]
remained unchanged at $2,350.3 per ounce.