European stock markets fell on Wednesday ahead of a French election and a major U.S. inflation figure, as the yen fell to its lowest since 1986, raising concerns about central bank intervention.
Risk sentiment in Europe deteriorated this morning as markets remained sensitive to global monetary policy, and a rise in Australian consumer prices overnight did not calm worries.
After French President Emmanuel Macron announced the sudden legislative election, the pan-European STOXX 600 fell 0.4% from its June 13 peak.
France’s CAC 40 (.FCHI) down 0.9%, Germany’s DAX fell 0.2%, and Britain’s FTSE 100 fell 0.2%.
“The turnaround in the market, which some may see as relatively stable, may be explained by a tug of war between bulls cashing in recent gains and bears resurfacing on mounting downside risks,” said TFS Derivatives equities analyst Stephane Ekolo.
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“French election, sticky inflation, China slowdown and geopolitical tensions, to name a few,” he said.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose to 567.59, just short of its two-year high of 573.38 last week. U.S. market futures were barely changed.
Japan’s Nikkei and Taiwan stocks rose, led by chipmakers, tracking a rally in the tech-heavy Nasdaq on Tuesday. Nvidia surged more than 6%, snapping out of a three-session tailspin that had cost it $430 billion.The Federal Reserve has advised patience on interest rate decreases, with governor Lisa Cook unwilling to indicate when the Fed can act.
Fed Governor Michelle Bowman said maintaining the policy rate stable “for some time” should contain inflation.
The remarks and consistent housing market statistics kept expectations low for when and how much the Fed will lower rates.
“(The) worst thing the Fed could do is ease and the data continues to firm the inflation numbers back around,” said ING’s Asia-Pacific research director Rob Carnell.
CME FedWatch showed markets pricing in 47 basis points of easing this year, with a September rate decrease at 72% chance.
The Fed’s preferred inflation indicator, the U.S. personal consumption expenditures (PCE) price index, is expected to be released Friday. Reuters experts estimate annual growth to slow to 2.6% in May.
YEN LOW FOR 38 YEARS
The yen plummeted to 160.39 per dollar, its lowest level since 1986, fueling concerns that Japan may intervene to support it.
Tokyo spent 9.8 trillion yen to stabilize the currency after it fell to 160.245 per dollar in April.
Recently, the Bank of Japan delayed removing bond-buying stimulus until its July meeting, causing the yen to fall.
The BOJ is signaling that its July quantitative tightening plan may be larger than markets expect and include an interest rate rise.
“What they said last time (at the June policy meeting) was just so insubstantial that the market couldn’t help but be disappointed by it,” Carnell said.
“The BOJ must increase. July remains promising “Carnell stated.
After hotter-than-expected inflation statistics, the Aussie gained to $0.66885, narrowing the prospects of another rate rise in August.
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