European shares and US futures rise ahead of closely watched inflation data

European shares and Wall Street stock futures rose on Wednesday, ahead of a data release that is expected to signal a slowdown in US inflation.

The regional Stoxx Europe 600 index, which ended Tuesday in positive territory following four sessions of losses, added 1.2 per cent in morning trades. The gauge remains almost 13 per cent lower for the year.

London’s FTSE 100 gained 1.2 per cent and Germany’s Xetra Dax added 0.9 per cent. Futures trading implied the S&P would gain 1.1 per cent in early New York dealings, while the technology-focused Nasdaq 100 would add 1.3 per cent.

US inflation data due later on Wednesday is expected to show that consumer prices rose at an annual pace of 8.1 per cent in April. That would mark a slowdown from the 40-year high of 8.5 per cent reached in March.

“There’s a lot of hope in the market that we’ll get the surprise of a lower inflation reading and that we’re getting into a cycle of it coming in lower than expected,” said Guillaume Paillat, multi-asset portfolio manager at Aviva Investors. “That’s what the market’s hanging on today.”

Chinese official data released earlier on Tuesday showed that factory gate prices in the exporting nation climbed 8 per cent last month, in a slight deceleration from an 8.3 per cent rise the month before.

But investors and analysts remain uncertain about how quickly price pressures, exacerbated by coronavirus lockdowns in China and disruptions to food and fuel supplies caused by Russia’s invasion of Ukraine, will ease.

“It is not just about inflation peaking, but also the trajectory going forward,” said Aneeka Gupta, research director at exchange traded fund provider WisdomTree. “We believe it is going to be a long, drawn-out process back to levels where central banks are comfortable.”

The US Federal Reserve, which raised its main borrowing rate by half a percentage point last week and is widely expected to keep tightening monetary conditions to damp demand, is targeting an average inflation rate of 2 per cent over time.

US inflation “is still likely to overshoot the Fed’s target over the next couple of years and require further hikes beyond the aggressive repricing now expected by markets”, said Tim Drayson, US economist at Legal & General Investment Management.

Markets expect the Fed’s funds rate, at present set at between 0.75 per cent and 1 per cent, to reach 2.7 per cent by the end of this year.

The stock market moves in Europe came after Wall Street’s S&P 500 eked out a small advance at the end of a volatile trading session on Tuesday, as investors debated the merits of buying into a market downturn that has sent the blue-chip stock gauge 16 per cent lower in the year to date.

In debt markets, the yield on the 10-year Treasury note, a benchmark for asset valuations and loan pricing worldwide, fell 0.07 percentage points to 2.93 per cent. Germany’s equivalent Bund yield fell 0.04 percentage points to 0.96 per cent. Bond yields move inversely to prices.

In Asia, mainland China’s CSI 300 share index added 1.4 per cent and Japan’s Nikkei 225 closed 0.2 per cent higher.

Brent crude, the international oil marker, added 3 per cent to $105.48 a barrel.

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