U.S. inflation and debt woes drag stocks, oil slumps

  • The STOXX Europe index fell 0.3%
  • Currency markets are stable; T-bills are an eye default risk
  • US CPI is due at 1230 GMT

SINGAPORE, May 10 (Reuters) – Stocks were subdued and oil fell on Wednesday ahead of U.S. consumer price data that damaged hopes for interest rate cuts later this year, while President Joe Biden’s failure to break the impasse on the debt ceiling dampened markets. .

Europe’s main benchmark STOXX index fell 0.3%, echoing declines in MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ), and S&P 500 futures also fell.

A somber mood prevailed in European shares despite improvement from the financial sector, where Crédit Agricole’s ( CAGR.PA ) earnings that beat expectations helped banks ( .SX7P ) top the STOXX 600 with sector gains.

Oil prices also fell, ending a three-day rally, as Brent crude fell $1 as U.S. inventories rose in a possible sign of weakening demand.

April US consumer price data is due at 1230 GMT and economists expect headline CPI to come in at 5% year-on-year and core CPI at 5.5%, although sticker interest rates will drop.

“If the CPI numbers come in on the high side that’s what’s going to be taken out,” said ING economist Rob Cornell.

“It doesn’t seem particularly prudent if inflation is falling at such a slow rate that it could also feed into higher long-term Treasury yields.”

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There is a 60% chance that the Federal Reserve will cut interest rates in September. CME FedWatch Tool.

Treasuries were broadly flat, with the US debt ceiling approaching, spurring demand for safer assets including bonds on the one hand, while also pulling investors out of T-bills maturing in early June.

President Joe Biden and top lawmakers have failed to break the deadlock on raising the $31.4 trillion U.S. debt ceiling, but have promised to meet again before June, when the Treasury begins to struggle to meet its obligations.

The benchmark 10-year yield stands at 3.529%. The two-year yield was 4.049%.

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Forex markets have been treading water as markets weigh policymakers’ rhetoric against U.S. interest rates and traders’ hopes for a weaker dollar.

Emerging markets currencies were lower on Wednesday, with MSCI’s index (.MIEM00000CUS) flat as investors awaited direction from U.S. data.

JP Morgan’s G7 FX volatility hit a one-year low (.jpmvxyg7).

European Central Bank board member Isabelle Schnabel said on Tuesday that expectations of a rate cut were misplaced, but that it did not provide much of a boost to the euro as traders were reluctant to sell dollars in excess of the CPI data.

China’s weak import figures for April kept Chinese and Hong Kong stocks on hold for a second straight session, with investors hoping the market’s recovery since the reopening of the economy is fading in an uneven recovery.

Hong Kong’s Hang Seng (.HSI) fell 0.5%. The Shanghai Composite (.SSEC) fell 1.3% and the yuan fell to a two-week trough.

The apparent crackdown on companies performing due diligence has shaken the sector and worried investors. CICC Capital, a unit of top Chinese investment bank China International Capital Corp ( 3908.HK ), has stopped using consultancy Capvision, Reuters reported.

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Brent crude was at $76.90 a barrel. Gold is starting to settle above $2,000 an ounce, while Bitcoin is at $27,732.

Editing by Simon Cameron-Moore

Our Standards: Thomson Reuters Trust Principles.

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