US Stock Futures Pare Gains; Pound Falls After CPI: Markets Wrap

(Bloomberg) — US equity futures and European stocks pared gains as traders assessed prospects for earnings growth against a backdrop of rising interest rates. The pound and gilts fell after UK inflation rose faster than economists expected.

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The Stoxx Europe 600 Index was up 0.1%, while contracts on the S&P 500 and the Nasdaq 100 pointed to a modestly higher opening on Wall Street after some solid results Tuesday from companies including Netflix Inc., which reported a surge in subscribers. An Asia Pacific share gauge fell, led by declines in technology shares in Hong Kong.

The pound weakened after soaring food prices drove UK inflation back into double digits in September, matching the 40-year high of 10.1% reached in July and intensifying pressure on the central bank to act and on a government already forced to backtrack on policy following a market rout. The yield on the 10-year UK government bond rose.

“The Bank of England would be looking at a full 1% increase at its next meeting if it weren’t for the pain the consumer is feeling and, given the reversal of government policy, that is only going to get worse,” said Neil Birrell, chief investment officer at Premier Miton Investors. “This inflation number leaves the bank between a rock and a hard place.”

Treasury yields held near multi-year highs before the publication of US housing data for September and the Fed’s Beige Book. The yield on the 10-year rose to 4.06%. The dollar edged higher.

In Japan, authorities continued their jawboning of the yen, with Finance Minister Shunichi Suzuki saying he is increasing the frequency of monitoring foreign-exchange markets. The currency hovered above 149 per dollar. The 10-year government bond yield rose above the 0.25% upper limit of the central bank’s target range, a breach that’s likely to prompt the Bank of Japan to step up bond purchases to limit the advance.

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Read: Yen Traders on Intervention Alert as Japan Keeps Guard

Upbeat company results, cheaper valuations and UK policy reversals have helped buoy risk appetite. At the same time, investors are monitoring signs of weakness in the global economy and the impact of persistent inflation on the Federal Reserve and other hawkish central banks.

Terry Sandven, chief equity strategist at US Bank Wealth Management, warned that challenges remain for equity markets. “Analysts’ consensus earnings projections remain subject to downward revision,” he wrote in a note. “Inflationary trends, hawkish Fed commentary, and a slower earnings growth pace in 2023 are key contributors weighing on investor sentiment and equity prices.”

Some regional Fed directors last month favored raising a key interest rate by a smaller or larger amount than the 75 basis points that policy makers ultimately decided was needed to curb persistent inflation, according to minutes of discount-rate meetings released Tuesday.

Read: Fed’s Bostic Says Slowing Inflation Best for Long-Run Employment

Oil climbed from a two-week low on concern that the European Union’s latest sanctions on Russian fuel could exacerbate the market tightness that the US is trying to alleviate with additional sales. The Biden administration will announce Wednesday a plan to release 15 million barrels from US emergency oil reserves in an effort to ease high gasoline prices.

Elsewhere, gold declined and Bitcoin traded around $19,300.

Key events this week:

• Euro area CPI, Wednesday

• EIA crude oil inventory report, Wednesday

• US MBA mortgage applications, building permits, housing starts, Fed Beige Book, Wednesday

• Fed’s Neel Kashkari, Charles Evans, James Bullard speak, Wednesday

• US existing home sales, initial jobless claims, Conference Board leading index, Thursday

• Euro area consumer confidence, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.1% as of 8:21 a.m. London time

• Futures on the S&P 500 rose 0.2%

• Futures on the Nasdaq 100 rose 0.5%

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific Index fell 0.7%

• The MSCI Emerging Markets Index fell 1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro fell 0.3% to $0.9827

• The Japanese yen fell 0.1% to 149.46 per dollar

• The offshore yuan fell 0.2% to 7.2397 per dollar

• The British pound fell 0.4% to $1.1280

Cryptocurrencies

• Bitcoin fell 0.7% to $19,229.84

• Ether fell 1.2% to $1,298.2

Bonds

• The yield on 10-year Treasuries advanced six basis points to 4.06%

• Germany’s 10-year yield advanced four basis points to 2.32%

• Britain’s 10-year yield advanced eight basis points to 4.03%

Commodities

• Brent crude rose 0.7% to $90.63 a barrel

• Spot gold fell 0.8% to $1,639.23 an ounce

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