Stocks slide ahead of US inflation data, earnings hurdles

People pass an electronic screen showing Japan’s Nikkei stock price index at a conference hall in Tokyo, Japan June 14, 2022. REUTERS/Issei Kato

SYDNEY/LONDON, July 11 (Reuters) – Stocks slid on Monday as investors braced for a US inflation report that could force another outsized rate hike and the start of an earnings season that will put pressure on earnings .

The STOXX index for European equities fell 1.3% (.STOXX) with S&P 500 futures down 0.8% and Nasdaq futures down 0.9% as an upbeat U.S. June payroll report the raised expectations of a 75 basis point hike in the US Federal Reserve.

MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) fell 1.8%, while Chinese blue chips (.CSI300) fell 1.9% after Shanghai reported a COVID-19 case with a new one subvariant, Omicron BA.5.2.1. Continue reading

Bond yields and the unbridled US dollar also rose, with the latter hitting a 24-year high against the yen.

Central banks in Canada and New Zealand are expected to tighten further this week, underscoring the global nature of the inflation challenge.

While Wall Street posted some gains last week, market sentiment will be tested by Thursday’s gains from JPMorgan and Morgan Stanley, followed by Citigroup and Wells Fargo the day after.

Another hurdle will be Wednesday’s US CPI report, where markets see headline inflation further accelerating to 8.8% but a slight slowdown in the core metric to 5.8%.

An early reading of consumer inflation expectations this week will also draw the Fed’s attention.

“Unexpected weakness in these releases will be required to crush expectations for a 75 basis point Fed rate hike on July 27, which rose to 74 basis points from about 71 basis points after the payroll report,” said Ray Attrill, chief the FX strategy at NAB.

PARITY PARITY

Treasury yields rose about 10 basis points in the jobs report and the 10-year bond stood at 3.09% on Monday from a recent low of 2.746%.

A hawkish Fed coupled with recession fears, particularly in Europe, has kept the dollar at 20-year highs against a basket of peers. The dollar broke above 137.00 and hit 137.28 yen, its highest level since 1998 as the Bank of Japan remained dovish. Continue reading

Japan’s conservative coalition government is said to have increased its majority in the upper house elections on Sunday, two days after the assassination of former Prime Minister Shinzo Abe. Continue reading

The euro continued to struggle at $1.0122 after shedding 2.4% last week to hit a two-decade low and key retracement target at $1.0072.

“With little economic relief on the horizon for Europe and US inflation data likely to mark a new yearly high and the Fed to continue to aggressively hike higher, we believe risks remain skewed in favor of the greenback,” said Jonas Goltermann, a Senior Market Economist at Capital Economics.

“In fact, we believe that EUR/USD is about to break through parity and may trade a little way through this level.”

Rising interest rates and a strong dollar gave no-yield gold a headache, which ailed at $1,739 an ounce after falling for four straight weeks.

Oil prices were also down around 4% last week as concerns over demand offset tight supply.

Data from China due on Friday is likely to confirm that the world’s second-largest economy shrank sharply in the second quarter due to the coronavirus lockdown.

Brent traded down $1.27 to $105.76, while US crude fell $1.43 to $103.36 a barrel.

Reporting by Wayne Cole and Lawrence White; Edited by Kenneth Maxwell, Bradley Perrett and Kirsten Donovan

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