Stocks struggle before crucial US inflation report: Markets Wrap

(Bloomberg) — European stocks and US equity futures posted small moves in cautious trading before the release of keenly awaited inflation data that could provide clues on the timing of Federal Reserve interest rate cuts.

Most Read from Bloomberg

Auto stocks fared best in Europe as Michelin rallied after the tiremaker’s earnings and a share buyback announcement. Overall, the Europe Stoxx 600 index slipped 0.3%, while US equity futures were little changed. Treasuries and the dollar were steady before the inflation report, which is expected to show the first reading below 3% on year-over-year headline inflation since March 2021, supporting optimism price pressures are easing.

“We expect the data to continue justifying a much less pronounced Fed easing cycle than is currently priced in by the market,” said Win Thin, global head of markets strategy at Brown Brothers Harriman & Co. “This should help support the dollar.”

The pound strengthened after UK wage growth slowed less than expected in the fourth quarter, underscoring the case for the Bank of England to wait before cutting interest rates. Money markets pared wagers on BOE easing, with traders betting on 71 basis points of cuts in 2024, down from 78 basis points on Monday.

Meanwhile, shares in Asia climbed for the first time in four days, led by equities in Japan. The nation’s Nikkei 225 index rallied the most since November 2022, as tech shares led gains after Tokyo Electron Ltd. boosted its full-year revenue and profit guidance. Markets are closed in China, Hong Kong, Taiwan and Vietnam for Lunar New Year holidays.

Federal Reserve Bank of Richmond President Thomas Barkin said one simmering risk to inflation falling back toward the central bank’s target comes from US businesses. Many have boosted profit margins by raising prices in recent years — a practice that may be difficult to amend and one that would provide upward pressure for inflation.

Story continues

Bond traders are now more in line with the…