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European equity markets slumped as traders expected the data to show a sustained spike in US inflation that could move the Federal Reserve to tighten its pandemic-induced loose monetary policy.
The Stoxx Europe 600 index fell 0.3 percent but remained near a record high due to the region’s economic recovery from the coronavirus crisis. The London FTSE 100 lost 0.5 percent and the German Xetra Dax lost 0.2 percent.
The futures markets signaled that Wall Street’s S&P 500 would trade unchanged in early New York trades.
Economists polled by Bloomberg show that US consumer prices rose 5.3 percent in August compared to the same period last year.
Federal Reserve officials don’t expect rates to hike from their current record lows before 2023. Jay Powell, chairman of the central bank, has argued that the higher inflation is caused by temporary factors related to the pandemic, such as computer chip shortages and shipping disruptions.
But US households now believe inflation will be 5.2 percent a year from now, according to a survey by the New York Federal Reserve, well above the central bank’s target of an average of 2 percent over time.
Brent crude, the oil benchmark, rose 0.8 percent on Tuesday to $ 74.11 a barrel, heading for the third straight day in gains.
Federal Reserve officials have recently announced their willingness to cut back on the Fed’s $ 120 billion monthly bond purchases made during the pandemic to cut borrowing costs and lending and spending to increase.
Another high inflationary pressures “gives us one more reason to believe that tapering will happen before the end of the year,” said Rebecca Chesworth, head of equities at State Street’s SPDR ETFs business.
A cut in the Fed’s bond purchases has been widely forecast, she added, “but what would have an even greater impact will be the rate hikes that will follow.”
The yield on 10-year US Treasuries, which is contrary to the price of the Treasury and affects borrowing costs worldwide, increased 0.02 percentage points to 1.343 percent. The equivalent German federal yield rose by 0.02 percentage points to minus 0.303 percent.
The dollar index, which measures the US currency against six others, fell 0.2 percent. The pound sterling rose 0.3 percent against the dollar to $ 1.3873 after job vacancy data showed British employers rushed to hire new employees as the government prepared to withdraw pandemic wage subsidies.
In Asia, the Hang Seng index in Hong Kong fell 1.4 percent after losing 1.5 percent on Monday amid crackdown by the Chinese government against the technology and gaming industries and stress in the country’s real estate market.
The Beijing government plans to liquidate payment giant Alipay while major Chinese real estate developer Evergrande faces a debt crisis. To put the Chinese economy under further pressure, the important export province Fujian reported a new outbreak of the highly contagious Delta coronavirus variant.
Chesworth described the fact that the western stock markets did not react more strongly to the situation in China as “bizarre”.
“I think about the number of times I’ve spoken to customers who buy into a company because of their exposure to China, but we don’t see the opposite,” she said.