European Stock Futures Lower as U.S. Inflation Fears Weigh
European stock markets are seen opening lower Wednesday, as a jump in U.S. inflation raised concerns the Federal Reserve could tighten its ultra-easy monetary policies sooner than previously expected.
At 2:05 AM ET (0605 GMT), the DAX futures contract in Germany traded 0.2% lower, CAC 40 futures in France dropped 0.3% and the FTSE 100 futures contract in the U.K. fell 0.1%.
European markets have received a weak handover from Asia, and also Wall Street, after data released Tuesday showed the U.S. consumer price index jumped 0.9% in June, climbing 5.4% on the year, the biggest jump in U.S. inflation in 13 years.
“Yet another blowout inflation reading makes it increasingly difficult for the Fed to stick to its position that elevated inflation readings are merely ‘transitory’,” said analysts at ING, in a note. “The case for a 2022 rate hike is strong.”
With this in mind, investors will carefully study comments from Fed Chairman Jerome Powell in his two-day semi-annual testimony to Congress, starting later Wednesday, for any sign that the latest numbers have changed his thinking.
Back in Europe, the U.K. inflation also surprised to the upside, with prices climbing 0.5% in June, a gain of 2.5% on the year. The release of Eurozone industrial production figures for May is due later in the session.
Oil was down Wednesday morning in Asia, after data showing that China’s crude imports dropped in the first half of 2021 triggered fuel demand concerns. However, the black liquid still remained near a one-week high as supply concerns persist alongside the economic recovery from COVID-19.
Brent oil futures were up 0.34% to $76.23 by 12:43 PM ET (4:43 AM GMT) after jumping 1.8% during the previous session. WTI futures were down 0.45% to $74.91, after gaining 1.6% on Tuesday.
Crude imports in China, the world’s top oil importer, reportedly dropped by 3% from January to June 2021 year-on-year. Import quota shortages, refinery maintenance and rising global prices led to reduced purchases that resulted in the first such contraction since 2013.
“Imports were scaled back as surging prices for crude oil have eroded refinery profit margins… if OPEC+ doesn’t agree to raise supply soon, high oil prices will also likely lead to demand destruction in even more cost-sensitive emerging markets, especially India,” Eurasia Group analysts said in a note.
The note referred to the ongoing disagreement over supply policy within the Organization of the Petroleum Exporting Countries and allies (OPEC+), which has left the output increase for August, now less than three weeks away, in limbo. The cartel is yet to meet after talks held at the beginning of the month ended without agreement.
Meanwhile, the International Energy Agency said global withdrawals from storage in the third quarter of 2021 are forecast to be the most in at least a decade, thanks to early June stock draws in the U.S. Europe and Japan.
Gold Up, but Gains Capped by Higher-Than-Expected U.S. Inflation
Gold was up on Wednesday morning in Asia, but Tuesday’s data that said U.S. consumer prices last month rose by the most in 13 years capped the yellow metal’s gains.
Gold futures were up 0.21% to $1,813.65 by 1:16 AM ET (5:16 AM GMT). The dollar, which normally moves inversely to gold, inched down on Wednesday, steadying after it saw its best daily percentage gain in nearly a month during the previous session.
The U.S. core consumer price index (CPI) rose a higher-than-expected 0.9% month-on-month in June, with consumer prices rising by the most in 13 years. As supply constraints and a rebound in the costs of travel-related services from COVID-19-depressed levels continue, it is expected that inflationary concerns are set to remain.
Investors’ focus is now shifting to U.S. Federal Reserve Chairman Jerome Powell’s testimony before Congress later in the day for any clues on when the central bank will begin asset tapering and hiking interest rates. Powell has thus far insisted that higher inflation would be a temporary phenomenon.
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