Treasury yields, greenback fall before crucial US inflation data

BLOOMBERG

Treasury yields and the dollar fell before crucial US inflation data that investors will scrutinise for clues on the Federal Reserve’s next move on interest rates.
Stocks posted moderate moves, with Europe’s Stoxx 600 Index and US equity futures little changed. France’s blue-chip CAC 40 index was set to close at a record high. Among individual stocks, Nokia Oyj fell after cutting its longer-term profitability target and AstraZeneca Plc rose after agreeing to buy vaccine developer Icosavax Inc.
Asian shares were broadly higher, with Hong Kong’s equity gauges leading gains, as traders await decisions from a meeting of Chinese economic policymakers that may indicate how much stimulus to expect next year.
Tuesday’s US consumer price index will give Wall Street a sense of whether the disinflation trend is continuing, a day before the last scheduled Fed decision of 2023. The US central bank is widely expected to hold rates, with most market focus on whether it will try to temper policy easing expectations after investors’ aggressive dovish repricing. A gauge of dollar strength slipped 0.2%. Treasuries rose across the curve, with 10-year yields falling four basis points to 4.20%.
As traders look forward to Thursday’s Bank of England rates decision, figures showed UK wage growth slowed at the sharpest pace in almost two years, a further sign that the labour market is cooling in response to a flagging economy. Monetary policy announcements are also due from the European Central Bank and in Switzerland and Norway that day.
The headline US CPI number for November is forecast to decline to 3.1%, the lowest reading since the June print released in July, which coincided with this year’s lowpoint for the dollar. Core inflation is seen cooling to just below 3% in the first half of next year, according to Bloomberg Economics. Such a scenario would help pivot the Fed to an easing stance.
“Short-term inflation expectations have come down sharply on lower energy prices in recent months,” said Anna Wong and Stuart Paul of Bloomberg Economics. “That makes more room for the Fed to consider rate cuts as downside risks for activity and upside inflation risks become more balanced.”
In China, the 2023 Central Economic Work Conference was expected to end on Tuesday. The meeting will likely indicate a more proactive role for fiscal policy, including more front-loading of funding and strengthening implementation to improve policy efficacy, according to Bloomberg Economics.
Bank of Japan
Meanwhile, the yen rebounded from its biggest decline in more than a month that was triggered by a report saying Bank of Japan (BOJ) officials see little need to rush to scrap negative interest rates this month. Japan’s five-year government bond sale drew higher-than-expected cut-off price, signaling robust demand as speculation eased about the BOJ’s potential exit from its negative interest rate regime. Japan’s producer prices decelerated in November to the slowest in almost three years, supporting the BOJ’s view that inflationary pressure is moderating.