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Stocks flat, dollar plunges as investors brace for US inflation data

  • European STOXX and US futures edge up slightly
  • Markets await US CPI report at 12:30 GMT
  • Economists expect US inflation of 8.7% – Reuters poll

LONDON, Aug 10 (Reuters) – Stocks and bonds stabilized on Wednesday as the dollar edged lower ahead of U.S. inflation data that could give clues to the Federal Reserve’s appetite for rate hikes. more aggressive rates.

The Consumer Price Index (CPI) report will be released at 12:30 GMT, with markets watching for signs of slowing inflation in July despite surprisingly strong US jobs figures last week.

The market is pricing in a 69.5% chance of a 75 basis point rate hike at the next Fed meeting .

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Economists polled by Reuters expect the CPI to show headline inflation (USCPNY=ECI) of 8.7% year-on-year, well above the Fed’s 2% target but down compared to 9.1% last month.

Europe’s benchmark STOXX index (.STOXX) edged up 0.08%, following a 1% decline in MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS), data on Chinese inflation indicating a price increase of 2.7% in July, below expectations.

“I don’t think we’re through the woods of the bear market yet – recession risks are looming and I don’t think the Fed is done with its aggressive belt-tightening,” said market strategist David Chao. worldwide for Asia-Pacific excluding Japan. at Invesco.

“I don’t think the markets have fully discounted those variables. This week’s inflation data will certainly give us more clarity on the Fed’s near-term policy outlook.”

US markets looked set to open broadly flat, with S&P 500 futures up 0.18% as investors awaited key data.

“Today’s inflation data follows a strong US jobs report last week, which eased fears of a short-term recession slightly, but suggests the economy has still need some cooling,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

ECB HIKE

The dollar fell slightly, showing signs of recovering from a decline that began in mid-July. The dollar index, which measures the greenback against six major peers, fell 0.24% to 106.1, possibly suggesting weaker CPI expectations.

Eurozone bond yields fell as Refinitiv data showed traders pricing a second straight 50 basis point hike from the European Central Bank at its September meeting.

Money markets in the bloc now price the likelihood of a 50 basis point hike from the ECB next month at 100%, up from 95% on Tuesday and around 50% last week, the data showed.

The yield on German 10-year government bonds DE10YT=RR fell 2 basis points to 0.904%.

Analysts noted that U.S. data due Wednesday represents a lagging indicator that may not yet show inflation slowing, and yield curves could flatten or invert further.

A flattening yield curve is generally seen as a sign of an economic slowdown and inversions as predictors of recessions. Measured by the spread between 2- and 10-year yields, the US curve is deeply inverted below minus 40 basis points.

Oil prices fell after industry data showed U.S. crude inventories rose unexpectedly last week, signaling a possible hiccup in demand. Brent crude futures fell $1.22 to $95.13 a barrel, while U.S. West Texas Intermediate (WTI) crude fell $1.25 to $89.27.

Gold also pared its gains and fell 0.26% to $1,789.5 an ounce. It briefly broke the $1,800 barrier overnight for the first time in over a month.

Bitcoin, which often tracks tech stocks, fell 0.25% to $23,082.

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Reporting by Lawrence White and Sam Byford; Additional reporting by Sujata Rao; Editing by Lincoln Feast, Robert Birsel and Alexander Smith

Our standards: The Thomson Reuters Trust Principles.

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