Stocks Fall, Pound Gains After UK Inflation Jolt: Markets Wrap

(Bloomberg) — European stocks fell after the latest price data from the UK cast doubt on hopes that prices pressures have been vanquished.

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The Stoxx Europe 600 slipped, with the FTSE 100 underperforming after data showed that UK inflation slowed less than expected last month, raising questions about when the Bank of England can start cutting interest rates. The pound surged and gilts plunged, sending the two-year yield about 14 basis points higher.

“Naturally, data of this ilk casts some doubt on the BOE cutting rates as soon as the next MPC meeting in a month’s time,” said Michael Brown, a senior research strategist at Pepperstone Group Ltd. “The bumpier- and slower-than-expected disinflationary path signaled by today’s data increases the likelihood that policymakers seek to err on the side of caution, and delay any such cut until August.”

US equity futures were little changed after the S&P 500 hit yet another record high as investors waited to see whether artificial intelligence bellwether Nvidia Corp. willl able to match sky-high expectations when it reports results on Wednesday.

The UK inflation shock followed dovish signals from policy makers in the US and euro region. European Central Bank President Christine Lagarde indicated that an interest rate cut is probable next month, 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 of the last Fed policy meeting are due later Wednesday.

Traders have grown doubtful of the Fed delivering the two rate reductions that were priced in just last week in the immediate aftermath of a benign inflation reading for April. The swaps market is now anticipating around 40 basis points of rate cuts for the end of the year, with the first full 25 basis point of easing priced into the November policy meeting.

Treasury yields ticked higher and a gauge of the dollar was steady.

Volatility Ahead

Stock investors are bracing for a spike in volatility, and upcoming events such as Nvidia’s earnings report can exacerbate any moves, according to Goldman Sachs Group Inc. strategists.

The Santa Clara, California-based company — whose shares have soared over 90% this year after more than tripling in 2023 — is expected to report revenue buoyed by soaring demand in its data-center business.

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For Morgan Stanley’s Andrew Slimmon, there’s still plenty of room for the market to extend its gains from all-time highs.

Low expectations for equities and the preference for a 5% to 6% yield from Treasury bills suggests that markets are still in the “fear” part of the current cycle, the senior portfolio manager at the bank’s investment management arm said Tuesday.

In commodities, gold held near a record for a second day, while silver and copper slipped after hitting recent highs. Oil extended losses following an industry report showed a jump in stockpiles, adding to bearish signs for the market.

Key events this week:

• US existing home sales, Wednesday

• Fed 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

• Fed’s Raphael Bostic speaks, Thursday

• US durable goods, consumer sentiment, Friday

• Fed’s Christopher Waller speaks, Friday

Some of the main moves in markets:

Stocks

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

• S&P 500 futures were little changed

• Nasdaq 100 futures were little changed

• Futures on the Dow Jones Industrial Average fell 0.1%

• The MSCI Asia Pacific Index fell 0.2%

• The MSCI Emerging Markets Index rose 0.3%

Currencies

• 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 rose 0.3% to $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 advanced three basis points to 4.44%

• Germany’s 10-year yield advanced five basis points to 2.55%

• Britain’s 10-year yield advanced 11 basis points to 4.24%

Commodities

• Brent crude fell 1% to $82.07 a barrel

• Spot gold fell 0.2% to $2,415.95 an ounce

This story was produced with the assistance of Bloomberg Automation.

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