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Stocks hold steady, yields fall ahead of US inflation data

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MILAN, May 11 (Reuters) – Global stocks rose on Wednesday and bond yields fell further below recent highs ahead of U.S. inflation data that will give an idea of ​​how aggressively the Federal Reserve will rise rates.

European stocks extended their rebound from two-month lows and US futures also gained ahead of the release of the much-anticipated data point which analysts said could show inflationary pressures in the biggest economy of the world reach a peak.

The MSCI benchmark for global stocks (.MIWD00000PUS) rose 0.3% at 10:44 GMT after slipping to its lowest level since November 2020 on Tuesday on fears that Fed tightening could significantly slow the economy. world. The index is down 17% since the start of the year.

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The benchmark pan-European STOXX 600 equity index (.STOXX) rose 1.3%. US stock futures rose, with the Nasdaq and S&P 500 e-minis up 1.5% and 1.2% respectively.

Concerns about faltering growth, exacerbated by the latest virus lockdowns in China, have dampened a sell-off in government bonds that saw US benchmark 10-year yields rise above 3% this month for the first time. since December 2018.

“It’s an unanchored market where people don’t know where (returns) are going. The growth side is increasingly front and center in terms of market concerns,” said Charles Diebel, head of income. fixed at Mediolanum International Funds.

“If inflation continues to rise higher and higher, the market will continue to sell. Intuitively, inflation cannot continue to rise because base effects will wear off at some point, but are we at that yet? price ?” he added.

Analysts anticipate the US consumer price index

They also predict a sharp decline in monthly growth, from 1.2% in March to 0.2% in April.

In Asia, stocks tightened after near two-year lows. Chinese blue chips (.CSI300) rose 1.4% after Shanghai officials said half the city had achieved “COVID-free” status, and after US President Joe Biden said that he was considering eliminating Trump-era tariffs on China.

Chinese data released on Wednesday, however, showed that consumer prices rose 2.1% from a year earlier, beating expectations and the fastest pace in five months, partly due to food prices.

YIELDS DROP

Benchmark 10-year Treasury yields fell to their lowest levels in nearly a week, extending their slide from the three-year high of 3.203% hit on Monday, on bets that CPI data could show that the surge in inflation is finally beginning to peak.

The 10-year yield fell to 2.9270%, down 5 basis points (bps) on the day, while the 2-year yield, which often mirrors the Fed’s rate outlook, fell 1 .8 bps at 2.5858%.

Yields on eurozone government bonds also fell to their lowest levels in nearly a week, in signs that any monetary policy tightening by the European Central Bank will be gradual. German 10-year yields fell 4 basis points to 0.964%.

Bets on aggressive Fed tightening have also supported the dollar this year.

The dollar index, which measures the greenback against six major peers, fell 0.4% to 103.57, below the two-decade high of 104.19 hit earlier this week.

Last week the Fed raised interest rates by 50 basis points and Chairman Jerome Powell said two more such hikes were likely at upcoming policy meetings at the US central bank.

There has also been speculation in the markets that the Fed will have to make a massive 75 basis point hike at a meeting and currently money markets are pricing in over 190 basis points of combined rate hikes per year. .

“The current problem is that the market is convinced that the Fed is determined to fight inflation and therefore is ready to tolerate market volatility and some destruction of demand more than in the past. Personally, I am less convinced of this determination,” said Giuseppe Sersale. , fund manager at Anthilia.

Morgan Stanley expects global economic growth this year to be below the midpoint of 2021 at 2.9%, down from a previous estimate of 3.2%. read more The US bank also cut its end-of-year target for the S&P 500 by 11% to 3,900 points, while raising its 10-year US yield forecast by 55 basis points to 3.15%.

Oil rebounded, buoyed by supply issues as the European Union scrambles to drum up support for a ban on Russian oil.

Brent rose 2.9% to $105.40 a barrel and U.S. crude 3% to $102.79.

Spot gold rose 0.8% to $1,852.65 an ounce.

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Reporting by Danilo Masoni in Milan, Sujata Rao in London and Alun John in Hong Kong, Editing by William Maclean

Our standards: The Thomson Reuters Trust Principles.

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