European stocks were higher on Tuesday ahead of the eagerly anticipated release of November’s US consumer price figures, with investors hoping the data would provide further evidence that inflation in the world’s biggest economy had peaked.
The regional Stoxx Europe 600 added 0.3 per cent in early trading and London’s FTSE 100 rose 0.2 per cent. Contracts tracking Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq 100 both rose 0.2 per cent ahead of the New York open.
The moves came as global investors braced themselves for a potentially pivotal set of US inflation data, with the consumer price index forecast to have slowed to an annual pace of 7.3 per cent, down from 7.7 per cent in October, according to a consensus estimate compiled by Eikon, a data provider. That would push US inflation to its lowest level since December 2021.
Compared with the previous month, overall CPI is expected to have risen 0.3 per cent, slightly less than the 0.4 per cent increase registered in October.
Skittish stock markets have not reacted well to bad news in recent weeks, however, and sold off sharply following the release of stronger than expected producer inflation data last week.
“Equities will tank hard” if November’s inflation figures come in hotter than expected, said Mike Zigmont, head of trading and research at Harvest Volatility Management.
“All the market really needs is for the actual CPI to be lower than the prior month’s number,” Zigmont added. “As long as the downward inflation trend is obvious and indisputable, the market won’t fear the [Federal Reserve] and the market won’t rock the boat — too much.”
Unless extreme, November’s inflation figures are unlikely to stop the Fed slowing the pace of its interest rate rises when it meets later this week. Chair Jay Powell has all but promised to implement a 0.5 percentage-point rise at the central bank’s final meeting of the year, ending a run of four consecutive 0.75 percentage-point moves.
“Never say never, but it’s unlikely we’re going to get a standout number that would force the Fed to do more than 0.5 [percentage points],” said David Dowsett, global head of investments at GAM.
The Fed’s economic projections on unemployment, gross domestic product and inflation will take centre stage on Wednesday, with investors on the lookout for hints on the level at which US interest rates might peak in 2023. Markets expect borrowing costs to crest just below 5 per cent in late spring before falling towards the end of the year.
The European Central Bank and the Bank of England also meet this week, and they are expected to tighten monetary policy less aggressively than in recent months, despite mixed economic data.
Eurozone core inflation — which excludes changes in the price of energy, food and tobacco — remained at an all-time high of 5 per cent in November, while data out on Tuesday from the UK’s Office for National Statistics showed that private sector wage growth across the country accelerated in the three months to October.
“The US economy has remained relatively resilient throughout the past year, but that is not the case in the UK or Europe,” Dowsett added. “That gives those central banks cover, or more than cover — evidence — to also slow the pace of rate hikes.”
In Asia, Hong Kong’s Hang Seng index rose 0.7 per cent, while Japan’s Topix added 0.4 per cent. China’s CSI 300 fell 0.2 per cent.