European stocks slipped with US futures as investors digested the latest read on American inflation and assessed bets on timing for the first Federal Reserve rate increases in the pandemic era.
The Stoxx Europe 600 Index traded slightly lower after two days of gains, with technology and miners offsetting declines in travel and leisure and consumer products. Contracts on both the S&P 500 and Nasdaq 100 pointed lower.
The pound advanced to its highest level since October 29 despite calls for UK Prime Minister Boris Johnson to resign over a “bring your own bottle” party at the height of a lockdown meant to stem the first wave of coronavirus infections in 2020.
The dollar underperformed all its Group of 10 peers as traders moved beyond a recent preoccupation with hedging the speed and intensity of future US rate increases. Bets that the Fed will embark on rate liftoff in March appear to be priced in following the US inflation data in-line with forecasts.
The US inflation read came after Fed Chair Jerome Powell vowed to contain the worst price pressures in nearly four decades without derailing the economic recovery from the pandemic. In prepared remarks, Fed Governor Lael Brainard said tackling inflation while sustaining an inclusive recovery is the US central bank’s most pressing task.
“Inflation is going to be with us no matter if they increase rates and the challenges of the economy here are just going to build on that,” Shana Sissel, Strategic Wealth Partners chief market strategist, said on Bloomberg Television. “I am concerned that there is going to be quite a bit of volatility in the market and our economy is going to slow down considerably.”
Fed St. Louis President James Bullard told the Wall Street Journal that four rate increases may be warranted this year amid high inflation. Separately, Fed Bank of Cleveland President Loretta Mester and Atlanta Fed leader Raphael Bostic backed hiking rates as soon as March.
Elsewhere, oil held an advance on signs of tighter supply. Bitcoin traded around $44,000 as the inflation numbers rekindled the debate about whether the cryptocurrency is a hedge against rising consumer prices.
The Stoxx Europe 600 falls 0.3% as of 9:19 am London time and futures on the S&P 500 were little changed. While futures on the Nasdaq 100 fall 0.1%, futures on Dow Jones Industrial Average also drop 0.1%.
The MSCI Asia Pacific Index was little changed and the MSCI Emerging Markets Index was little changed.
While the Bloomberg Dollar Spot Index was little changed, the euro rises 0.3% to $1.1471 and the Japanese yen was little changed at 114.56 per dollar. The offshore yuan was little changed at 6.3661 per dollar and the British pound rose 0.3% to $1.3739.
The yield on 10-year Treasuries was little changed at 1.75% and Germany’s 10-year yield advanced two basis points to -0.04%. Britain’s 10-year yield advanced two basis points to 1.16%.
Brent crude was little changed and spot gold falls 0.3% to $1,821.24 an ounce.