Ford Motor Co. climbed in premarket trade as a result of a double-upgrade from UBS AG, keeping contracts for the S&P 500 and the tech-heavy Nasdaq 100 fairly stable. Following China’s announcement that there are security issues with iPhones but that it is not preventing purchases, Apple Inc. appeared to be headed for a second day of falls.
Meanwhile, as worries about stagflation increased, Europe’s Stoxx 600 fell 0.6%. After the UK economy contracted at the highest rate in seven months, the pound continued to fall, reaching a three-month low. Following warnings from the International Energy Agency, crude oil prices increased.
According to Bloomberg Economics, the US pricing data going out on Wednesday could reveal a third consecutive month of low core inflation, supporting the case for the Federal Reserve to stop raising interest rates. Contrast that with the problems in Europe, where traders are increasing their bets that the European Central Bank will raise interest rates on Thursday amid rising inflation worries, despite reports that the German government expects a decline rather than slow growth this year.
All eyes will be on the US core CPI later today, according to Singapore-based Nomura Holdings Inc. strategist Chetan Seth. “Stock investors would be hoping not to see a punchy inflation reading tonight as it might give support to the theme of higher-for-longer Fed rate,” according to the article. Oil has increased by more than 10% in less than two weeks.
According to Bloomberg experts, US inflation data that shows a 0.2% increase in prices for items other than food and energy in August would likely be more significant to Fed officials than a possible 0.6% increase in the overall consumer price index due to an energy-driven rebound.
Crude increased as the IEA issued a warning that Saudi Arabia and Russia’s supply cuts may increase volatility. West Texas Intermediate increased for a second day, and Brent continued to rise beyond $92 per barrel as a result of the IEA’s prediction that production cuts will result in a “significant supply shortfall.”
While their 10-year peers stuck at 4.29%, Treasury two-year rates, which are more responsive to Fed policy than longer maturities, remained above 5%. Prior to the CPI figures, the dollar’s exchange rate with its peers from the Group of 10 barely altered.
According to Susana Cruz, a strategist at Liberum Capital, “US inflation has become predictable and is on the right path; the markets have already assimilated the idea that rates will need to remain high until at least the second half of 2024.” “We observe a higher degree of uncertainty in Europe.”
Traders increased their bets on the central bank raising rates at the meeting to a 70% possibility, up from a 20% probability earlier this month, after reports that the ECB’s fresh economic forecasts will show an inflation prediction for 2024 above 3%.
One of the most monetary policy-sensitive yields, the German two-year yield, increased four basis points to 3.17%, the highest level since mid-August.
The European Stock Market Index quickly reversed its downward trend as Volvo Car AB, Renault SA, and Volkswagen AG all experienced gains following the announcement by the European Union that it would be looking into Chinese subsidies for electric vehicles.
The pound fell as much as 0.4% versus the dollar in the UK as data revealed that the economy contracted at the sharpest rate in seven months in July as strikes and poor weather had a more severe impact on business than anticipated. When policymakers decide whether to hike interest rates again next week, that might cause them to take a break.
The largest listing of the year, the long-awaited initial public offering of Arm Holdings Plc, is scheduled to price on Wednesday. According to Bloomberg News, Arm is currently trying to price the IP0 shares $1 or more over the $47 to $51 target range.