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Inflation worries ruffle stocks, underpin dollar

U.S. stock futures indicated a flat Wall Street open and world shares slipped on Wednesday after a U.S. inflation leap fuelled expectations of a quicker end to Federal Reserve stimulus, while the dollar held near a three-month high versus the euro.

Inflation worries ruffle stocks, underpin dollar

FILE PHOTO: The London Stock Exchange Group offices are seen in the City of London, Britain, December 29, 2017. REUTERS/Toby Melville

LONDON: U.S. stock futures indicated a flat Wall Street open and world shares slipped on Wednesday after a U.S. inflation leap fuelled expectations of a quicker end to Federal Reserve stimulus, while the dollar held near a three-month high versus the euro.

The U.S. consumer price index jumped 0.9per cent in June, data showed on Tuesday, above market expectations and the largest gain since June 2008.

Investors are watching the semi-annual testimony of Fed Chair Jerome Powell to Congress on Wednesday and Thursday for clues on whether the Fed will take more aggressive steps to halt rising inflation.

"This isn't surprising that the market is concerned about inflation. Our view is still that most of it is transitory," said Seema Shah, chief strategist at Principal Global Investors. She said she did not expect the Fed to start tapering its bond-buying programme until early next year.

"The Fed speakers will be out in force today reiterating their patience with inflation to reassure markets."

S&P futures were little changed after the S&P 500 index lost 0.35per cent on Tuesday following the inflation data. The Dow Jones Industrial Average fell 0.31per cent and the Nasdaq Composite dropped 0.38per cent overnight.

MSCI's broadest gauge of global stocks dipped 0.14per cent after hitting a record high on Tuesday on investor bets of a global economic recovery just weak enough to permit central banks to retain a dovish policy.

European stocks fell 0.31per cent after reaching record peaks on Tuesday, with Germany down 0.15per cent and France off 0.26per cent.

Britain's FTSE 100 dropped 0.54per cent, after UK inflation touched 2.5per cent in June, its highest in nearly three years.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.25per cent as Chinese blue-chips fell 1.15per cent. Japan's Nikkei dipped 0.38per cent.

KIWI FLIGHT

The New Zealand dollar shot up 0.92per cent as markets bet that a New Zealand rate hike is imminent after the central bank on Wednesday unexpectedly announced it would end its bond purchase programme from next week.

Barclays analysts forecast a 25 basis point rate hike at the central bank's November meeting.

The Bank of Canada is also expected to taper weekly asset purchases at its meeting later on Wednesday, according to a Reuters poll.

The Canadian dollar dipped 0.12per cent to 1.2494 per U.S. dollar.

The euro rose 0.19per cent to US$1.1796 after the U.S. dollar earlier touched a three-month high against the single currency.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, weakened 0.2per cent to 92.615 after rising as high as 92.832 - just below the 92.844 level reached last week for the first time since April 5.

The dollar dipped 0.11per cent against the yen to 110.50.

The pound rose 0.43per cent against the dollar after the high UK inflation data.

“An interest rate rise is not yet around the corner, but it is steadily becoming a less distant prospect, and this is injecting momentum into the pound," said Ulas Akincilar, head of trading at INFINOX.

Bank of England Deputy Governor Jon Cunliffe said a jump in British inflation was a bump on the road as the economy reopened from lockdowns, and that the BoE would look at its likely persistence in new forecasts next month.

U.S. bond yields pulled back after jumping across the curve on Tuesday on the U.S. inflation data.

The benchmark 10-year yield slipped to 1.3946per cent from a close of 1.415per cent on Tuesday.

President Joe Biden's administration is continuing to push for fiscal stimulus to boost the U.S. economy.

Democrats on the U.S. Senate Budget Committee late on Tuesday reached an agreement on a US$3.5 trillion infrastructure investment plan that they aim to include in a budget resolution to be debated this summer.

German 10-year Bund yields were little changed at -0.293per cent after Germany sold 3.392 billion euros in a top-up of its 0.00per cent 10-year Bund.

Oil fell after data showed China's first-half crude imports dropped 3per cent from January to June versus a year earlier.

U.S. crude was down 0.57per cent at US$74.80 a barrel and global benchmark Brent crude was down 0.45per cent at US$76.05 per barrel.

Spot gold, a traditional inflation hedge, rose 0.42per cent to US$1,815 per ounce.

(Additional reporting by Andrew Galbraith in Shanghai; Editing by Timothy Heritage and Mark Heinrich)

Source: Reuters

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