U.S. futures were higher in early European trading as investors focused on the upcoming U.S. July inflation report and the impact it could have on interest rates. Oil was higher as the deadlock between the U.S. and Iran continued.
President Trump said the situation with Iran was “going fine” and claimed that U.S. forces are in control of the crucial Strait of Hormuz. “We own it,” Trump told reporters late Tuesday. “And at some point, maybe they’ll do something, and then they get blown away.”
Treasury yields were steady, while gold prices were up.
—U.S. futures were higher, with the Dow Jones Industrial Average and S&P 500 up 0.05% and 0.2% respectively, while the tech-heavy Nasdaq climbed 0.4%. All eyes are on today’s U.S. inflation print, which could affect expectations for the Federal Reserve’s September meeting with potential pressure from oil prices and rising chip costs. “As such, whatever the data says today, the upside risks to inflation won’t fade. But if the numbers are softer than those penciled in by analysts, we might well see a rally in both bonds and stocks, as the earnings season is going surprisingly well for U.S. and European companies,” Swissquote’s Ipek Ozkardeskaya said.
—European markets mostly fell in opening trading as continued tensions in the Middle East weigh on sentiment. However, energy stocks were higher, led by Vestas Wind Systems—up 17%—after the Danish wind-turbine manufacturer beat revenue estimates. The Stoxx 600 index was down 0.03%, while London’s FTSE 100 and France’s CAC 40 fell 0.1% and 0.2% respectively. Against the trend was Germany’s DAX—up 0.07%—led by Siemens Energy and Rheinmetall, which were up 4.2% and 2.3% respectively.
—Asian equity markets were mixed Wednesday, ahead of U.S. inflation data and as prospects of an imminent U.S.-Iran deal faded. Japan’s Nikkei Stock Average closed 0.8% higher after returning from a holiday on Tuesday. South Korea’s Kospi ended 3.7% higher, Hong Kong’s Hang Seng Index was 0.95% lower and China’s Shanghai Composite Index closed 0.3% higher.
—The euro’s scope to rise against the dollar looks limited even if U.S. inflation data today are lower than expected, ING’s Chris Turner said in a note. If the data are soft, the euro could challenge last week’s high of $1.1580, he said. However, much more of a move “may be too much to ask in quiet summer markets, given we will also see another round of inflation and jobs data—plus the Jackson Hole Federal Reserve symposium—before the Fed decides on policy mid-September.” Moreover, Middle East tensions remain unresolved, which is keeping European natural gas prices elevated, he said. The euro traded steady at $1.1535.
—Yields on U.K. government bonds advanced ahead of the release of the U.S. inflation data. A weaker CPI reading could increase the prospects of the U.S. Federal Reserve keeping interest rates on hold in September and cause Treasury yields to drop, Mizuho’s Evelyne Gomez-Liechti said in a note. Nonetheless, over the medium-term, Treasury yields could move higher as the Fed is expected to raise interest rates by year-end, Gomez-Liechti said. High oil prices are also causing gilt yields to rise due to concerns about inflation. Ten-year gilt yields climbed 1.6 basis points to last trade at 4.969%, Tradeweb data showed.
—Treasury yields and the dollar traded steady as investors await U.S. inflation data. The data are expected to show annual inflation eased to 3.4% in July from 3.5% in June, according to a WSJ survey of economists. Given pricing for the Fed’s September meeting is in balance between a rate rise and no increase, the data may help reduce the uncertainty, Danske Bank’s Jens Naervig Pedersen said in a note. LSEG data showed the market prices a 53% chance of a 25 basis-point rate rise in September. The DXY dollar index traded at 99.873. The 10-year Treasury yield was at 4.682%, below Tuesday’s 11-day high of 4.735%, according to Tradeweb.
—Yields on eurozone government bonds rose as investors exercised caution ahead of U.S. CPI inflation data. Ten-year Bund yields rose 1.1 basis points to last trade at 3.159%, Tradeweb data showed. Ten-year French government bond yields climbed 1.2 bps to 3.978%.
—Bitcoin edged lower as investors exercised caution due to ongoing uncertainty over the Middle East conflict and ahead of U.S. inflation data. Bitcoin fell 0.2% to $63,599, LSEG data showed.
—Oil futures were higher but pared earlier gains. Front-month West Texas Intermediate futures rose 0.6% to $83.73 a barrel, while front-month Brent crude gained 0.6% to $89.48 a barrel. The European benchmark price for natural gas, the Dutch futures contract TTF, was up 4% to 61.11 euros a megawatt hour.
—Gold prices rose as traders awaited the release of key U.S. inflation data. “Traders are now focusing on today’s U.S. CPI print to gauge whether the recent technical breakout above $4,200 has enough momentum to carry prices towards the next major hurdle, the 200-day moving average near $4,500,” Saxo Bank analysts said. “ETF inflows extended to a fifth consecutive session, lifting total holdings to a six-week high and providing further evidence of renewed investor demand.” In midmorning European trading, New York gold futures rose 0.6% to $4,469.30 a troy ounce.
Write to Barcelona Editors at barcelonaeditors@dowjones.com
