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Stocks down 0.2% in nervous trading
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Markets await Powell’s take on US rate outlook
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UK CPI data swings BoE rate hike bets
By Wayne Cole and Lawrence White
SYDNEY/LONDON, June 21 (Reuters) – Stocks fell on Wednesday on negative news including a lack of new stimulus from Beijing, bearish British inflation data and a further fall in European real estate, while markets await directives from Federal Reserve Chairman Jerome Powell.
The world’s most powerful central banker will meet with lawmakers during two days of testimony and is likely to be asked whether rates will actually rise again in July and peak in a range of 5.5% to 5.75 % as expected.
Markets are having doubts and are currently implying around a 78% chance of a hike to 5.25-5.5% next month, which would likely mark the end of the entire tightening cycle.
“The focus is on whether the July meeting is actually ‘live’ and whether the Fed’s dot plot of two more hikes constitutes a true base case based on the data, or whether a speech “catastrophic impact on inflation in order to avoid a premature easing of financial conditions,” said Tapas Strickland, head of market economics at NAB.
The uncertainty sent S&P 500 and Nasdaq futures down 0.1%, following a 0.2% decline in the European benchmark STOXX and a 1% drop in the index MSCI’s broadest Asia-Pacific stocks outside of Japan.
The U.S. dollar was firmer ahead of Powell’s key congressional testimony, with the dollar index up 0.1% at 102.62.
GREAT BRITAIN: NATION OF INFLATION
Elsewhere on the currency front, the struggling Japanese yen gained some respite as risk aversion prompted profit-taking on heavily-crowded short positions. The currency has been falling for weeks as the Bank of Japan (BOJ) stubbornly defended its ultra-accommodative policy.
Minutes of the central bank’s latest meeting show that only one of the nine board members suggested reconsidering its policy of keeping bond yields low, and even then suggested that it was better to wait a bit.
This lack of urgency should limit any rebound in the yen and keep the dollar at 141.80 yen, just above Tuesday’s seven-month high of 142.26.
The euro also stabilized at 154.78 yen, not far from its recent high of 155.37.
The single currency held steady against the dollar at $1.0916, while the pound strengthened slightly as higher-than-expected inflation data raised expectations of larger rate hikes by the central bank.
Investors increased their bets on a rate hike by the Bank of England by half a percentage point, after data showed inflation defied expectations that it would slow and held steady at 8.7% in May.
That pushed interest rate futures to suggest about a 45% chance of an impactful 50 basis point hike in the base rate, up from a 25% chance on Tuesday.
The latest figures make UK inflation the highest of any major advanced economy and sent the domestically focused FTSE 250 index down 0.9% to its lowest level in 11 weeks.
Homebuilders were down 3% at one point as the prospect of further rate hikes raised fresh concerns about mortgage costs.
Rising interest rates and bond yields weighed on gold, which remained stuck at $1,934 an ounce, just above last week’s three-month low of $1,924. .99 dollars.
Oil prices edged higher after a few sessions of losses, still grappling with concerns over Chinese demand in the absence of a significant stimulus package.
Brent added 32 cents to $76.22 a barrel, while U.S. crude rose 35 cents to $71.54.
(Reporting by Wayne Cole and Lawrence White; editing by Jacqueline Wong, Lincoln Feast and Alex Richardson)
