[1/2]The graphic of the German share index DAX is pictured on June 28, 2023 at the Frankfurt Stock Exchange. REUTERS/Staff
- Europe stocks open flat, US futures slightly up
- The yuan eases despite the PBOC issuing a tighter-than-expected guidance
- The yen came under pressure after Ueda faced Powell and Lagarde
- Gold slips to 3-month low
LONDON, June 29 (Reuters) – Global stocks and the dollar edged higher and gold hit a three-month low on Thursday as traders’ attention continued to vacillate between the battle to bring down inflation and speculation of currency market interventions in China and Japan.
Europe’s regional STOXX 600 index (.STOXX) was little moved in early trade after posting its biggest rise in almost a month the previous day, while futures markets later pointed to a slightly higher start on Wall Street.
Sweden had already started the day with another rate hike, while one of its largest companies and one of Europe’s biggest fashion retailers H&M took the stock (HMb.ST) to a 16-month high after better-than-expected results.
It all ties into the multi-trillion dollar question that economists grapple with. Where is persistently high inflation headed?
Spain reported that its annual inflation rate fell to 1.9% in June, the lowest level since March 2021. Related figures from Europe’s largest economy, Germany, will also be released as the world’s top central bankers retreat from a meeting hosted by the ECB near adopted Lisbon.
“Given the delays, we are entering a delicate period in monetary policy,” said Paul Gruenwald, S&P’s chief global economist, as the company predicted a further rise in default rates in many parts of the world.
“If inflation persists, interest rates must rise. But if central banks tighten monetary policy too much, growth will slow down sharply.”
In Asia, MSCI’s broadest index of Asia-Pacific equities outside of Japan (.MIAPJ0000PUS) was down 0.5% overnight, with bank holidays in Singapore, India and Malaysia slowing trading.
Chinese blue chips (.CSI300) fell 0.3% and Hong Kong’s Hang Seng Index (.HSI) fell 1.3%. However, Japan’s Nikkei (.N225) gave up earlier gains and rose 0.1%.
Focus continued to be on the region’s two largest currencies, the Japanese yen and Chinese yuan, both of which have come under severe pressure in recent weeks.
The yuan slipped to 7.2491 per dollar, just a touch off an eight-month low hit a day ago. This came despite another stronger-than-expected official rate hike from the People’s Bank of China, which investors interpreted as Beijing’s attempt to stabilize the yuan.
The Japanese yen, meanwhile, hit a more than seven-month low against the dollar. The dollar’s rise of more than 11% against the yen since late March has seen it hit 144.71 yen and prompted heightened warnings about the speed of the rise from Japanese government officials this week.
The Bank of Japan intervened in the foreign exchange market last fall when the dollar surged above 145 yen. In European trading it was 144.24.
“The verbal intervention playbook is consistent with intervention soon and if it moves above 145 we could easily intervene again,” said Chris Turner, global head of markets at ING.
However, Shane Oliver, chief economist at AMP in Sydney, said China might not mind its currency falling a bit more because it supports its huge export sector
“But they probably don’t want it to go down too fast because then it looks a bit like a panic,” he added.
GERMAN FEAR
Overnight, US stock markets ended broadly flat, although the soaring Nasdaq (.IXIC) posted another small gain, while Apple (AAPL.O) closed at a new record high.
US Federal Reserve Chair Jerome Powell said in Portugal that US interest rates are likely to rise further and has not ruled out a rate hike in July. Specifically, he said he doesn’t expect inflation to fall back to the 2 percent target before 2025.
On the bond markets, European yields – an indicator of the cost of borrowing – rose again slightly.
In contrast to the Spanish data, news that the inflation rate in North Rhine-Westphalia had risen again boosted expectations for something similar in the Germany-wide figures as North West is the country’s most populous state.
The 10-year German bond yield, the benchmark for the currency bloc, was up 4.5 basis points (bps) to 2.36%, while the 2-year yield rose 4 bps to 3.21%.
Two-year US Treasury yields also rose to 4.759%, but are still down from the 4.778% set Wednesday after Powell’s comments.
Futures put the Fed’s chance of raising rates by 25 basis points in July at around 80% before holding rates steady for the rest of the year.
The President of the European Central Bank, Christine Lagarde, however, underpinned expectations for a ninth straight increase in interest rates in the euro zone in July. Markets have all but priced in two more ECB rate hikes this year.
In contrast, Bank of Japan (BOJ) Governor Kazuo Ueda reiterated that “there is still a long way to go” to achieve a sustainable inflation rate of 2% – the conditions the BOJ has set to achieve above a Consider exiting the ultra-loose stimulus measures.
Investors are now awaiting Friday’s US PCE index, the Fed’s preferred indicator of inflation. Analysts polled by Reuters expect the core interest rate to come in at 4.7% year-on-year, still well above the Fed’s 2% target.
“Markets appear to be stuck in a holding pattern, awestruck by the contradictions between risk sentiment, yield curves, data surprises and inflation,” said Mark McCormick, global head of FX and EM strategy at TD Securities.
Additional reporting by Stella Qiu in Sydney; Edited by Christina Fincher
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