©Reuters. FILE PHOTO: A passerby walks past an electric monitor showing recent movements in various stock prices in front of a bank in Tokyo, Japan March 22, 2023. REUTERS/Issei Kato
By Yoruk Bahceli and Ankur Banerjee
(Reuters) – Global equity and bond yields faltered on Wednesday as markets awaited key US inflation data that could signal how soon the Federal Reserve will end its aggressive rate hikes.
After Friday’s jobs report showed a resilient U.S. jobs market and encouraged bets for a 25 basis-point hike at the Fed’s next meeting in May, investors’ attention is firmly on the March inflation report, which is due later in the day.
According to a Reuters poll, CPI is expected to show core inflation, which excludes volatile food and energy prices, at 0.4% mom and 5.6% yoy in March, up from February’s 5.2% the Fed headache.
Markets were in a wait-and-see mode ahead of the data, with the pan-European index up 0.3% by 0820 GMT while gaining 0.6%. Futures also showed the US would open marginally higher.
In Asia, MSCI’s broadest index of Asia-Pacific stocks outside Japan was down 0.2% on choppy trading, leading to a three-day winning streak.
Government bond yields were also little moved as the benchmark was unchanged at 3.43% on the day.
“The inflation data for March is a look in the rear view mirror before the US banking market turmoil that has turned forecasts on their head,” said Esther Reichelt, FX analyst at Commerzbank (ETR:).
Reichelt said the data is unlikely to affect market bets, which conflict with the Fed’s own projections that it will cut rates later in the year to counter tightening funding conditions as a result of the banking turmoil.
“We don’t expect the discrepancy between the Fed and market expectations to end today or in the near future,” Reichelt said.
Money markets are now pricing in a 73% chance of the Fed raising rates by 25 basis points in May and then pausing, from about 50% before Friday’s jobs report, then 40 basis points of cuts by year-end.
Overnight, Philadelphia Federal Reserve Bank President Patrick Harker said he thought the US Federal Reserve could soon be done raising interest rates, but reiterated a desire to bring inflation back to its 2-year target % bring to.
The Fed raised interest rates by a quarter of a percentage point last month to a range of 4.75% to 5.00%.
“I’m at camp getting up about 5 and then sitting there for a while,” Harker said.
Minutes of the March Fed meeting are also due later in the day and investors will scour them for clues about the central bank’s monetary policy stance and the impact of stress on the banking sector.
The International Monetary Fund on Tuesday warned that lurking vulnerabilities in the financial system could fuel a new crisis this year and hurt global growth, as it lowered its 2023 global growth forecasts.
While markets are anticipating falling interest rates, the oil production cut announced by the OPEC+ group last week has also fueled fears of a flare-up in inflation, and for investors to truly assuage inflation worries, service prices need to fall significantly, they said the strategists of Saxo Markets.
“We don’t think we’ve made it yet. With oil prices on the rise again and the labor market only gradually cooling, the risk remains that core inflation will remain elevated for longer,” they said.
was at $85.68, up 0.1% on the day and up over 7% since the OPEC+ decision. [O/R]
China was also in focus, saying on Wednesday President Tsai Ing-wen was pushing Taiwan into “stormy seas” after Beijing held military drills in California in response to Tsai’s recent meeting with US House Speaker Kevin McCarthy according to Tsai showed Taiwan’s determination to defend freedom and democracy.
Chinese stocks were mixed, up 0.4%, while Hong Kong stocks fell 0.9% as investors weighed rising geopolitical tensions.
On the forex market, the , which measures the US currency against six peers, was last unchanged.
The euro rose 0.1% to $1.09205, while sterling was last traded at $1.24105, down 0.1% on the day.
The yen weakened 0.1% to 133.87 per dollar. The IMF said the Bank of Japan could help prevent abrupt policy changes later by allowing more flexibility in managing its bond yield curve.
rose 0.4% to $2,010.45 an ounce. [GOL/]
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