Stocks steady ahead of US inflation data, yen staggers

A person walks past an electric screen displaying a graph showing the current Japanese Yen exchange rate against the U.S. dollar as the yen declined to 38-year lows past 161 per dollar, outside a brokerage in Tokyo, Japan June 28, 2024. REUTERS/Issei Kato

By Huw Jones

LONDON (Reuters) -Global stocks held their ground on Friday ahead of U.S. inflation data that investors hope will bolster the chances of a Federal Reserve interest rate cut in September.

Meanwhile, the yen's slide to a 38-year low fuelled expectations over intervention by the Japanese authorities to stem the weakness after a new top foreign exchange diplomat was appointed.

S&P 500 futures and Nasdaq futures both ticked higher ahead of the Fed's preferred inflation measure, the personal consumption expenditures (PCE) index, due at 1230 GMT, before the opening bell on Wall Street.

If its annual growth slowed to 2.6% in May, as economists expect, it may open the way to rate cuts later this year.

Traders are now pricing in a 64% chance of a first Fed cut in September, up from 50% a month ago, according to the CME FedWatch tool, though analysts said those expectations could be derailed if the core PCE figures surprise to the upside.

FILE PHOTO: (L-R) The Hong Kong Exchanges flag, Chinese national flag and Hong Kong flag are hoisted outside the Hong Kong Stocks Exchange in Hong Kong June 7, 2016. REUTERS/Bobby Yip/File Photo

Oil was headed for a third straight weekly jump on hopes of a benign inflation figure to strengthen the Fed's hand to lower borrowing costs.

On the last trading day of the first half of the year, stocks hovered near recent record highs. The AI boom on Wall Street has helped the S&P 500 blue chip index rocket nearly 15% over the past six months, with hefty gains in Europe and Asia, too.

However, worries about the outcome of the two-stage French parliamentary elections that start on Sunday pushed the risk premium on French government bonds over German bonds to its widest since the euro zone debt crisis in 2012.

The political uncertainty in France, where the far right is leading, put the euro on track for its biggest monthly fall since January.

The MSCI All Country Stock Index was firmer at 804.8 points, near its lifetime high of 807.17 on June 20, and up about 10.5% for the year.

In Europe, the STOXX index of 600 companies gained 0.36% to 514 points, helping to cement its 7% gain for the year, though down so far for the month of June as French political uncertainty weighs.

"In the first half we've seen some really good performance from the equity market, and the question we are asking ourselves is where is the performance going to come from in the second half," said Eren Osman, wealth management director at Arbuthnot Latham.

The tech majors and AI boom should continue to drive stocks into the second half, he said.

"What we see is just a very clear narrative that the investment in that space is not going to slow down anytime in the near term, so to bet against that as a theme and likely strong equity market performance is probably not a wise move," Osman said.

FRAGMENTATION

There was a muted response from the dollar and U.S. stock index futures to the U.S. presidential debate that saw Democrat President Joe Biden stumble at times in a head-to-head with his Republican rival Donald Trump ahead of the November election.

"We see a potential Trump administration as more positive for the dollar both via looser fiscal policy and also via a more aggressive trade/tariff environment," analysts at ING bank said after the debate.

HSBC economist Paul Bloxham said commodity markets face greater fragmentation and supply disruptions if Trump wins in November due to an anticipated rise in trade protectionism.

MSCI's broadest index of Asia-Pacific shares outside pan rose 0.2% and was on track to gain more than 3% for the month, its best performance since February.

Chinese markets, meanwhile, reversed early losses to trade higher, with China's benchmark CSI300 last up 0.2%. Hong Kong's Hang Seng Index 0.56% higher. Investors had been concerned Biden and Trump could tip a harder stance on China during their debate.

In currency markets, the dollar was on the front foot and was eyeing a monthly gain of nearly 1.4% against a basket of currencies.

The yen tumbled to a trough of 161.27 per dollar, its weakest since 1986, and was last trading at 160.505.

The Japanese currency has fallen some 2.3% this month and more than 12% for the year against a resilient dollar, as it continues to be hammered by stark interest rate differentials between the U.S. and Japan.

The yen's weakness has, meanwhile, been a boon for the Nikkei, which last rose 0.6%. It was eyeing a monthly gain of about 3%.

In commodity markets, gold was a touch firmer at$2,335 an ounce. [GOL/]

Brent crude oil futures rose 0.65% to $87.04 a barrel, while U.S. West Texas Intermediate crude futures gained 0.8% to $82.37 per barrel.

(Reporting by Huw Jones in London, additional reporting by Rae Wee in Singapore and Stella Qiu in Sydney; Editing by Kim Coghill and Jacqueline Wong)