Global stocks snap seven-day winning streak; US inflation next hurdle

Thursday, 13 June 2019 00:12 - - {{hitsCtrl.values.hits}}

London (Reuters): World share markets snapped a seven-day winning streak on Wednesday as the White House took a tough line on trade talks with China, while an impending reading on US inflation was set to refine the odds of an early cut in interest rates there.

Europe’s main markets followed Asia by declining early on. London’s FTSE, the DAX in Frankfurt and CAC40 Paris were down 0.2% to 0.4% as traders trimmed some of June’s 4% gains.

Benchmark government bond yields fell as caution grew. FX dealers kept the dollar near an 11-week low before the US data, having priced in the first US rate cuts since the financial crisis.

“I think we are in for a very nervous wait until next week’s FOMC meeting,” Saxo Bank’s head of FX strategy, John Hardy, said.

“You have had the markets taking out aggressive positions on where the Fed is going to go and everybody is wondering whether they are ready to deliver as much, in terms of guidance, as has been priced in.”

Chinese inflation was in the mix, too. Figures overnight showed it picked up to a 15-month high of 2.7%, mainly because of surging pork prices. Excluding food, inflation rose only 1.6% and suggested plenty of scope for more stimulus.

MSCI’s broadest index of Asia-Pacific shares outside Japan had slipped 0.6% after two days of gains. Wall Street’s recent rally ended on Tuesday.

Japan’s Nikkei dipped 0.3%. Shanghai blue chips fell 0.7% following a 3% jump the day before.

Hong Kong’s Hang Seng lost 1.7% as demonstrators stormed roads next to government offices to protest against a bill that would allow people to be sent to China for trial.

“The impact was short-lived in the past,” noted Alex Wong, director at Ample Finance Group in Hong Kong. “This time people will look at how the US reacts to this kind of news. The US attitude towards Hong Kong and China are also not the same.”

President Donald Trump said on Tuesday he was holding up a trade deal with China and had no interest in moving ahead unless Beijing agrees to four or five “major points”, which he did not specify. He said interest rates were “way too high” and the Federal Reserve had “no clue”.

Fed policymakers will meet on June 18-19. With trade tensions rising, US growth slowing and hiring in May declining, markets have priced in at least two rate cuts by the end of 2019. Futures imply around an 80% chance of an easing as soon as July.

That might change depending on what US consumer price data show later in the session. Headline inflation is expected to slow to 1.9%, with the core rate steady at 2.1%.