Global Markets: Stocks Surge, Dollar Slips, Inflation Data Awaited

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In a positive start to the trading day, global stock markets experienced gains, while the US dollar faced a decline on Tuesday. Investors eagerly awaited the release of US inflation data, which could potentially influence the Federal Reserve's decision on interest rates. Moreover, the prospect of China's efforts to bolster economic growth played a role in lifting commodities such as oil and copper.

Market participants showed anticipation for the upcoming US inflation data scheduled for release on Wednesday. The figures are expected to shed light on whether price pressures are continuing to subside, thus providing insights into the future direction of interest rates.

The MSCI All-World index saw a 0.3% increase, primarily driven by the rise in European shares. The STOXX 600 climbed 0.6%, while US stock index futures indicated a modest increase of 0.2-0.4%, suggesting a positive opening at the bell.

Investors closely analyzed statements from various Federal Reserve officials made on Monday. These officials indicated that the level of inflation justified further rate hikes, but the central bank's current cycle of tightening monetary policy is nearing its end.

According to a Reuters poll, economists anticipate a 3.1% rise in the consumer price index for June, following May's 4% increase. If this forecast materializes, it would mark the lowest reading since March 2021. However, the core rate is expected to decline for the third consecutive month to 5% from 5.3%, still well above the Fed's 2% target.

The recent employment report, which revealed fewer-than-expected additions to non-farm payrolls in the previous month, triggered a sell-off in the US dollar. Nevertheless, it had little impact on rate expectations.

Craig Erlam, a market strategist at OANDA, expressed a cautious view regarding market movements between the jobs report and inflation, considering their close proximity. He mentioned that the focus is on tomorrow's inflation data, which arrives too late for the July meeting. Erlam noted that an interest rate hike is practically guaranteed, and only weak inflation figures could potentially alter that outcome.

Dollar Weakens

The dollar index, which measures the performance of the US currency against a basket of six other major currencies, registered a 0.1% decline, reaching its lowest level in two months. This move was in line with the retreat in US Treasury yields.

The yield on the 10-year US Treasury note dropped by 4 basis points to 3.966%, having fallen below 4% the day before.

Jim Reid, a strategist at Deutsche Bank, acknowledged the growing evidence of short-term disinflationary trends. However, he raised concerns about whether inflation will persist at uncomfortably high levels in the medium term.

The Japanese yen strengthened against the dollar, reaching one-month highs, resulting in a 0.7% decline in the US currency, partly due to the drop in Treasury yields.

China's Economic Outlook and Commodity Prices

News of potential stimulus measures to support the Chinese economy had a positive impact on the price of crude oil and other industrial commodities like copper and iron ore.

Chinese regulators extended certain policies introduced in November 2022 to enhance liquidity in the struggling real estate sector.

Brent crude, which had struggled to move above its 18-month lows, experienced a 0.5% increase, reaching $78.15 per barrel. Additionally, US futures rose 0.7% to $73.46.

Copper, traded on the London Metal Exchange, saw a 0.1% gain, with prices hovering around $8,375 per tonne. Demand from China, or the lack thereof, has contributed significantly to copper's projected annual loss, the first since 2018.

Upcoming Earnings Reports

This week, investors eagerly anticipate second-quarter earnings reports, with major Wall Street institutions such as JPMorgan, Citigroup, and Wells Fargo expected to disclose their results.

According to data from Refinitiv's IBES, analysts forecast a year-on-year earnings decline of 6.4% for the second quarter.

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