By Wayne Cole and Alun John
SYDNEY/LONDON (Reuters) -Major share indexes around the world crept higher on Monday continuing to grind back towards their late July peaks, with the focus of the week on a crucial report on U.S. inflation that will likely set the course of the dollar and bonds.
Europe’s STOXX 600 share index rose 0.3%, with Asia-Pacific stocks up 0.2% and S&P 500 futures also 0.2% higher.
MSCI’s world share index is now just 0.2% from its all-time high hit in late July as a strong earnings season in the United States, and a mildly positive one in Europe, support overall sentiment, helping investors to shrug off the impact of soft U.S. July jobs data.
Trade and geopolitics loom large this week. A U.S. tariff deadline on China, due to expire on Tuesday, is expected to be extended again, while U.S. President Donald Trump and Russian leader Vladimir Putin are due to meet in Alaska on Friday to discuss ending the Ukraine war.
The main economic release will be U.S. consumer prices on Tuesday, with analysts expecting the impact of tariffs to help nudge the core up 0.3% to an annual pace of 3.0% and away from the Federal Reserve target of 2%.
An upside surprise would challenge market wagers for a September rate cut, though analysts assume it would have to be a very high number given that a downward turn in payrolls is now dominating the outlook.
It also comes at a complicated time for the Fed, with Trump having repeatedly criticised policymakers for not cutting rates at recent meetings, and with the focus on who will succeed current chair Jerome Powell, whose term ends in May.
This, said Paul Mackel, Global Head of FX Research at HSBC, means that the dollar’s reaction to the CPI data will not be straightforward.
If the figure indicates higher U.S. tariff price pressures, “that could support the stagflation narrative, and to the dollar’s detriment”, he said, adding this would also go against the view of some policymakers that tariffs are not causing prices to increase.
“If, however, softer U.S. CPI readings materialise, including the core goods figures, this would likely challenge the dollar too by supporting the case for further Fed easing, and perhaps see greater criticism from the U.S. administration towards Fed Chair Powell.”
Markets imply around a 90% probability of a September easing, and at least one more cut by year-end.
That has helped support Treasuries, and the U.S. benchmark 10-year yield was last 4.25%, hovering near last week’s low of 4.187%. [US/]
The prospect of lower borrowing costs has supported equities, along with a run of strong earnings, particularly from tech names.
Analysts were unsure what to make of reports, including by Reuters, that Nvidia and AMD have agreed to give the U.S. government 15% of their revenues from chip sales in China, under an arrangement to obtain export licences for the semiconductors.
CHINA EXPORTS DEFLATION
Chinese blue chips added 0.5% after data showed consumer price inflation ticked up in July, but producer prices kept falling as the country’s massive manufacturing sector exported deflation to the rest of the world.
Figures on Chinese industrial output and retail sales for July are due on Friday, and forecasts are for a slight slowdown after a jump in the previous month.
Currencies were quiet, with early trading thinned by a holiday in Japan. The euro was marginally higher at $1.1651 and further away from a recent trough of $1.1392, while the dollar dipped to 147.38 yen.
The Australian dollar eased to $0.6520 ahead of a meeting of the Reserve Bank of Australia, which is widely expected to back a rate cut. It stunned markets in July by skipping an easing of policy to await more inflation data.
In commodity markets, gold fell 1.1% to $3,360 an ounce after wild swings last week on reports that the U.S. would slap 39% tariffs on some gold bars, which are major exports of Switzerland. [GOL/]
The White House said on Sunday it planned to issue an executive order clarifying the country’s stance.
Oil prices slipped on the possibility that the scheduled talks between Trump and Putin in Alaska on Friday could make progress towards a ceasefire in Ukraine and potentially prompt an eventual easing of sanctions on Russian oil exports. [O/R]
Brent dropped 0.9% to $65.97 a barrel, while U.S. crude eased 0.8% to $63.38.
(Reporting by Wayne Cole in Sydney and Alun John in LondonEditing by Sonali Paul and Gareth Jones)
