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US stocks, bonds dip ahead of inflation data

Global equity markets had modest declines at the open on Tuesday, with traders awaiting US inflation data that would inform the Federal Reserve’s plans to tackle inflation.

Europe’s benchmark Stoxx 600 opened down 0.1 per cent and Germany’s Dax index lost 0.3 per cent in early trading. The FTSE 100 traded flat.

Trading was also muted in Asia, where Hong Kong’s Hang Seng index closed little changed. Japan’s Topix lost 0.7 per cent, dragged lower by a 7 per cent decline in SoftBank shares after the conglomerate reported a record $23bn loss on Monday for the first quarter.

Investors began to look ahead to the release on Wednesday of US consumer price index data, which are expected to have a strong influence on the central bank’s plans to aggressively raise rates to bring down soaring inflation.

“The next 30 hours will be the calm before the storm or perhaps herald in the real start of the dog days of summer,” Jim Reid, a strategist at Deutsche Bank, wrote in a note

Economists polled by Reuters expect headline inflation to have increased 0.2 per cent from June to July, with core inflation, stripping out food and petrol costs, expected to have risen by 0.5 per cent. They expect inflation to have reached 8.7 per cent on a year-on-year basis, slightly below the figure for June.

Recent US data showed that inflation has continued to rise in recent months, with the Fed’s preferred inflation gauge, the core personal consumption expenditures index, and the latest employment cost index report, which tracks wages and benefits, also up in recent weeks.

Fed chair Jay Powell has adopted a “meeting-by-meeting” approach to rate rises, rather than providing guidance in advance. Markets are pricing in the possibility of a 0.75 percentage point rise at the Fed’s next policy meeting in September.

In bond markets, there was also little movement on Tuesday. The dollar lost 0.1 per cent against a basket of six currencies.

US futures tracking the blue-chip S&P 500 gained 0.1 per cent in morning trading, after US stocks closed down on Monday.

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