Global shares rose and the dollar was little changed on Tuesday ahead of U.S. inflation data that could warrant a quicker end to Federal Reserve rate hikes, while the prospect of China propping up economic growth helped lift commodities like oil and copper.
Markets are awaiting U.S. inflation data on Wednesday to see if price pressures are continuing to moderate, which could provide clues on the interest rate outlook.
The Dow Jones Industrial Average (.DJI) rose 0.39%, to 34,076.25, the S&P 500 (.SPX) gained 0.25%, to 4,420.57 and the Nasdaq Composite (.IXIC) added 0.28%, to 13,723.62.
The MSCI All-World index (.MIWD00000PUS) rose 0.5%, lifted by gains in European shares, with the STOXX 600 (.STOXX) up about 0.75%.
Investors were digesting comments from several Federal Reserve officials on Monday who said the level of inflation warranted additional rate hikes but the central bank is nearing the end of its current monetary policy tightening cycle.
Economists polled by Reuters expect the consumer price index to have risen by 3.1% in June, after May’s 4% increase. This would be the lowest reading since March 2021. The core rate is expected to have dropped for a third month to 5% from 5.3%, but this is still more than double the Fed’s 2% target.
Last week’s employment report showed far fewer workers than expected had been added to non-farm payrolls last month, which unleashed a wave of selling of the U.S. dollar, but did little to shift the needle in terms of rate expectations.
“(Market) movements, especially between the jobs report and inflation when they’re so close together, I take with a relative pinch of salt,” OANDA market strategist Craig Erlam said.
“There is a massive eye on tomorrow’s inflation data – it comes too late in the day for the July meeting. That hike is basically sealed and it would take something pretty weak on the inflation side to change that,” he said.
Second-quarter earnings will also be watched this week with results due from some of Wall Street’s biggest institutions, including JPMorgan (JPM.N), Citigroup (C.N) and Wells Fargo (WFC.N).
Analysts expect earnings to have shrunk 6.4% in the second quarter year-on-year, according to IBES data from Refinitiv.
FLAGGING DOLLAR
The dollar index, which measures the performance of the U.S. currency against six others, was little changed on the day and around its lowest in two months, in line with a retreat in U.S. Treasury yields.
Brown Brothers Harriman currency strategists wrote in a note on Tuesday that, despite recent pressure, “the fundamental story continues to favor the dollar…and markets are still seeing significant risks of a second Fed hike this year.”
The yield on the benchmark 10-year note was down 2 basis points at 3.988%, having broken below 4% the day before.
“While there is increasing evidence of near-term disinflationary trends, questions remain as to whether inflation will persist at uncomfortably high levels in the medium-term,” Deutsche Bank strategist Jim Reid said.
The Japanese yen rose to one-month highs against the dollar, leaving the U.S. currency down 0.4% on the day, tracking the drop in Treasury yields.
COMMODITIES
The prospect of a boost to the broader Chinese economy helped push up the price of crude oil and other industrial commodities such as copper and iron ore .
Chinese regulators on Monday extended some policies in a rescue package introduced in November to shore up liquidity in the embattled real estate sector.
Brent crude , which has struggled to pull clear of 18-month lows, was at $78.31, up 0.8% on the day. U.S. crude rose 0.95% to $73.68 per barrel. Traders weighed supply cuts by the world’s biggest oil exporters and hopes for higher demand in the developing world in the second half of 2023 against a sluggish global economic outlook.
Gold prices scaled a near three-week high. Spot gold added 0.33% to $1,930.69 an ounce.
