Global equities were pinned around all-time highs as traders stayed on the sidelines ahead of US inflation data on Thursday that may pressure the Federal Reserve to roll back its pandemic-era support for financial markets.
The FTSE All World index, which has gained more than 30 per cent in the past year as the world’s largest economies recovered from damage wrought by Covid-19, traded flat at the start of London morning dealings at close to record levels. The Stoxx Europe 600 was also flat after inching up to a new record earlier this week.
The yield on the 10-year US Treasury, which moves inversely to the price of the benchmark government debt security, was steady at 1.523 per cent.
Economists surveyed by Bloomberg expect that US consumer prices, excluding volatile food and energy costs, rose 3.5 per cent in May in their biggest year-on-year jump since 1993. Data on Wednesday also showed that Chinese factory gate prices, which influence what importer nations pay for goods, rose at the fastest pace since the financial crisis last month.
“Markets are very much in wait-and-see mode,” said Aneeka Gupta, equity and commodity strategist at WisdomTree. “But the reaction to Thursday’s inflation figures may be driven not so much by the data itself but by what the Fed signals it will do about it.”
The US central bank, which meets next week, has said consistently that bouts of inflation are a transient effect of industries reopening after last year’s coronavirus shutdowns. Some senior Fed officials, such as vice-chair Randal Quarles, have called for discussions about reducing the central bank’s $120bn of monthly bond purchases that have supported markets through the pandemic.
“The guidance the Fed gives is what will inform the direction of the markets over the next six months,” said Gupta. “But given markets are trading at such a high levels, we should see some price correction during this period.”
Futures markets signalled the blue-chip S&P 500 share index would also flatline at the New York opening bell.
Investors were looking to “Thursday’s inflation print to give them a clear market direction”, said analysts at Credit Suisse. “This is because inflation could have a profound impact on the Fed’s timing and pace of its tapering of bond-buying.”
The European Central Bank also holds its latest monthly meeting on Thursday, where president Christine Lagarde is expected to maintain her view that the bloc still requires supportive monetary policy and that a burst of higher inflation in the eurozone will be temporary.
“While we expect President Lagarde to be cautiously optimistic about the outlook for economic growth, we also expect her to emphasise that the recent increase in price pressures is likely to be transitory,” said Daiwa economist Chris Scicluna.
The yield on Italy’s 10-year bond, a barometer of traders’ appetite for riskier eurozone debt and whose finances have been bolstered by the ECB’s €1.85tn bond-purchasing programme, fell 0.04 percentage points to 0.8282 per cent. Germany’s equivalent Bund yield was steady at minus 0.230 per cent.
The euro was steady against the dollar, purchasing $1.2178. Sterling was also unmoved at $1.4166.
In Asia, the Nikkei 225 in Tokyo closed 0.3 per cent lower while China’s CSI 300 share index was flat.
Brent crude, the international oil benchmark, added 0.4 per cent to $72.54 a barrel.