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Stock markets diverge before US inflation data

LONDON (AFP) – Stock markets struck a mixed note yesterday as caution prevailed before key United States (US) inflation data, which could spell major implications for the Federal Reserve’s interest-rate plans.

London stocks edged lower as official data showed United Kingdom (UK) wages rose faster than inflation, reigniting concerns that British interest rates could remain at multi-year highs for longer than thought, or even increase further.

Official data, however, is expected to reveal today a sharp fall in British annual inflation.

In the eurozone, Frankfurt and Paris gained approaching the half-way stage, after a similarly mixed showing in Asia. Wall Street’s three main bourses provided a tepid lead as traders bided their time before the closely watched consumer price index (CPI) report, as well as other key figures including retail sales and jobless claims.

Oil prices won further support from an upbeat market outlook from the OPEC cartel of crude producers, while the dollar wavered.

An electronic board showing a currency exchange rate along a street in Tokyo, Japan. PHOTO: AFP

ON EDGE OF SEATS

“Investors are on the edge of their seats, waiting for the latest scoop on US inflation data to take a fresh direction in both stock and bond markets,” added SwissQuote analyst Ipek Ozkardeskaya.

CPI is forecast to have hit 3.3 per cent in October, down from 3.7 per cent in September, according to a Bloomberg survey of economists. But that is still well above the Fed’s two per cent target.

A number of Fed decision-makers are also lined up to make speeches, which will be pored over for their views on the central bank’s best course of action as they try to bring prices under control without tipping the economy into recession. There is a general consensus that they have already hit their peak in terms of rates, having brought inflation down from more than nine per cent last year, though officials have left the door open to another hike.

“Investors are fully aware that fluctuations in inflation, especially top-side beats, are an ongoing risk to markets,” said analyst Stephen Innes at SPI Asset Management.

“It is too early to completely dismiss the possibility of a hike in December (or January).”

Other analysts pointed out that policymakers have reasserted their determination to bring inflation to heel and would keep borrowing costs elevated for some time, even if they do not lift again.

Meanwhile, there are hopes that this week’s upcoming meeting between US President Joe Biden and Chinese leader Xi Jinping could ease tensions between the economic superpowers and give a much-needed boost to markets.

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