Stocks Surge as Dollar Weakens Ahead of Inflation Data

Global stock markets experienced gains on Tuesday while the U.S. dollar retreated, driven by anticipation of upcoming U.S. inflation data that could influence the Federal Reserve’s stance on interest rates. Commodities like oil and copper also saw an increase as China’s efforts to bolster economic growth boosted market sentiment.

Investors eagerly awaited the release of U.S. inflation data on Wednesday, seeking insights into the trajectory of interest rates. The MSCI All-World index rose 0.3%, driven by European shares and Chinese equities following additional support to the property sector. U.S. stock index futures indicated a modest rise at the opening bell.

Recent comments from Federal Reserve officials regarding inflation levels supported the expectation of further rate hikes, but also suggested that the central bank’s tightening cycle may be nearing its conclusion. Economists polled by Reuters projected that the consumer price index would show a 3.1% increase in June, a slight decrease from May’s 4% surge. Although the core rate was expected to decline for the third consecutive month, it would still surpass the Fed’s 2% target at 5%.

The U.S. dollar weakened by 0.2% against a basket of currencies, reaching a two-month low, while U.S. Treasury yields also retreated. Concerns over potential persistently high inflation levels in the medium term remained despite signs of near-term disinflationary trends. The Japanese yen gained strength against the dollar, reaching one-month highs, in tandem with the decline in Treasury yields.

Meanwhile, optimism surrounding the Chinese economy boosted the prices of crude oil and industrial commodities like copper and iron ore. Chinese regulators extended supportive measures to the struggling real estate sector, lifting market sentiment. Brent crude rose by 0.4% to $78 per barrel, and U.S. futures climbed by 0.5% to $73.35. Copper prices on the London Metal Exchange increased by 0.5% to approximately $8,400 per tonne, aiming to recover from its first annual loss since 2018, primarily due to uneven demand from China.

This week, investors eagerly awaited the release of second-quarter earnings reports from major Wall Street institutions, including JPMorgan, Citigroup, and Wells Fargo. Analysts projected a year-on-year earnings decline of 6.4% for the second quarter, according to data from Refinitiv’s IBES. With earnings season in focus, market participants weighed the potential impact of upcoming inflation data on the Federal Reserve’s decisions and overall market sentiment.

The juxtaposition of the jobs report and inflation data within a short timeframe prompted cautious interpretation of market movements. Experts highlighted the significance of the inflation data’s impact on the upcoming July meeting, with a rate hike appearing likely, barring weak inflation figures. While the U.S. dollar and Treasury yields retreated, investors monitored inflation trends closely, balancing near-term disinflationary factors against concerns of elevated inflation in the medium term.