Stocks fall, pound gains after UK inflation slump: Markets wrap

(Bloomberg) — European stocks fell after the latest price data from the UK cast doubt on hopes that price pressures had dissipated.

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The Stoxx Europe 600 slipped and the FTSE 100 underperformed after data showed UK inflation fell less than expected last month, raising questions about when the Bank of England will start cutting interest rates. The pound rose and gilts fell, sending two-year yields about 14 basis points higher.

« Naturally, the next MPC meeting in a month's time casts some doubt on the BOE cutting rates, » said Michael Brown, senior research strategist at Pepperstone Group Ltd. The expected inflation path given today's data increases the likelihood that policymakers will err on the side of caution and delay such tapering until August. »

US equity futures were little changed after the S&P 500 hit another record high, with investors looking to artificial intelligence bellwether Nvidia Corp. They waited to see if the sky-high expectations would be matched when the results were announced on Wednesday.

The UK inflation shock followed poor signals from policymakers in the US and the Eurozone. European Central Bank President Christine Lagarde indicated that an interest rate cut next month is possible, with price pressures largely contained. Federal Reserve Governor Christopher Waller said the central bank could consider easing at the end of 2024 given « reassuring » data. Minutes from the central bank's last policy meeting are due later Wednesday.

Traders are skeptical that the central bank will deliver two rate cuts priced in last week after a benign inflation reading for April. The swaps market expects rate cuts of about 40 basis points by the end of the year, with the first full 25 basis point cut at the November policy meeting.

Treasury yields remained high and the dollar held steady.

Volatility Ahead

Stock investors are bracing for an increase in volatility, and upcoming events like Nvidia's earnings report, Goldman Sachs Group Inc. According to strategists, any move can be leveraged.

The Santa Clara, California-based company — whose shares have more than tripled by 2023 and are up more than 90% this year — is expected to boost earnings from rising demand in its data center business.

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For Morgan Stanley's Andrew Slimman, the market still has room to extend its all-time gains.

Low expectations for equities and a preference for 5% to 6% yields from Treasury bills suggest markets are still in the « fear » part of the current cycle, a senior portfolio manager at the bank's investment management division said on Tuesday.

Among commodities, gold held a record high for a second day, while silver and copper slipped after hitting recent highs. Oil extended losses following an industry report that showed a rise in inventories, adding to the bleak signs for the market.

Highlights of this week:

• US existing home sales, Wednesday

• Feed Minutes, Wednesday

• Nvidia earnings, Wednesday

• Eurozone S&P Global Services and Manufacturing PMIs, Consumer Confidence, Thursday

• G-7 Finance Meeting, May 23-25

• US new home sales, initial jobless claims, Thursday

• The central bank's Raphael Bostick speaks Thursday

• US Durable Goods, Consumer Sentiment, Friday

• The central bank's Christopher Waller speaks on Friday

Some key movements in the markets:

Shares

• The Stoxx Europe 600 was down 0.4% as of 8:08 a.m. London time.

• S&P 500 futures were little changed

• Nasdaq 100 futures were little changed

• Futures for the Dow Jones industrial average fell 0.1%

• The MSCI Asia Pacific index fell 0.2%

• The MSCI emerging market index rose 0.3%

Coins

• The Bloomberg Dollar Spot Index was little changed

• The euro was unchanged at $1.0854

• The Japanese yen fell 0.2% to 156.42 per dollar

• The offshore yuan was little changed at 7.2489 per dollar

• The British pound was up 0.3% at $1.2741

Cryptocurrencies

• Bitcoin was little changed at $69,727.01

• Ether rose 0.3% to $3,758.29

Bonds

• The yield on 10-year Treasuries rose three basis points to 4.44%.

• Germany's 10-year yield rose five basis points to 2.55%

• Britain's 10-year yield rose 11 basis points to 4.24%.

materials

• Brent crude fell 1% to $82.07 a barrel

• Spot gold was down 0.2% at $2,415.95 an ounce

This story was produced with the help of Bloomberg Automation.

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