Stocks mixed as UK inflation eases, sterling weighs

  • US consumers are still spending, supporting economic confidence
  • Hong Kong extends slide as China outlook darkens

SYDNEY, July 19 (Reuters) – Futures elsewhere rose as British inflation came in surprisingly slow for a time and U.S. data fueled hopes that the world’s biggest economy would avoid recession.

Headline British CPI fell to 7.9% year-on-year in June against expectations for 8.2%. Core inflation eased to 6.9% from a three-decade peak of 7.1%. Sterling was down 0.6% at $1.2962 and FTSE futures were up 0.5%.

Earlier MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) was pulled 0.6% lower by a 1.2% drop for the Hong Kong ( .HSI ).

Japan’s Nikkei (.N225) rose 0.9% to hit a two-week high. US futures were flat and European futures rose 0.3%.

The headline US retail sales data came in below forecasts, but core sales excluding food, fuel and construction materials rose 0.6% in June and economists raised gross domestic product (GDP) forecasts.

“You can sense the probability of a soft landing,” said Tapas Strickland, head of market economics at National Australia Bank in Sydney. “Core inflation is coming down and there’s momentum from consumers.”

The Atlanta Fed’s influential GDP Now tracker said the U.S. economy grew at an annualized rate of 2.4% in the second quarter, slightly higher than a forecast of 2.3% a week ago.

Big U.S. bank stocks rose sharply on strong results. Microsoft ( MSFT.O ) shares rose 4%, adding $100 billion in market value, after the company announced payments for artificial intelligence features in its office software, a big first step in monetizing the potential of AI.

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Tesla ( TSLA.O ), Goldman Sachs ( GS.N ) and Netflix ( NFLX.O ) reported earnings on Wednesday.

Inflation is falling

British inflation is the latest negative surprise in major economies, following Canada on Tuesday and the US last week. While it’s still uncomfortably high, a temporary rally in gilts could be extended if traders stick to less rate hikes.

As the dollar slipped, sterling fell 0.6% to 86.66 pence to the euro in 1-1/2 months.

It was a different story in New Zealand, where inflation was 6% year-on-year, slower than 6.7% a month ago, but above expectations. This pushed two-year swap rates higher as markets priced in rates.

The New Zealand dollar rose to $0.6315 as the US dollar rose with little help from a weaker euro.

European Central Bank (ECB) Governing Council member Klaus Knott said on Tuesday that hikes beyond next week’s meeting were “by no means certain”, knocking the euro off a 17-month high. It last traded at $1.2220.

“This is the first time that a known hawk within the ECB has supported the market’s view that we are nearing the end of the hiking cycle in Europe,” said Chris Weston, head of research at broker Pepperstone in Melbourne.

The comments led to a rally in European bonds, gilts and Treasuries that extended to Asian sovereigns on Wednesday.

The benchmark 10-year US Treasuries yield fell 2 basis points to 3.7717%. EUR/GVD

The yen fell to a one-week low of 139.43 per dollar and Japanese government bonds rallied after the Bank of Japan’s governor stuck to his script saying policy changes are still some time away.

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Brent crude futures settled at $79.42 a barrel after Tuesday’s gains. Gold held on to gains as yields fell and bought $1,975 an ounce.

Editing by Lincoln Feast, Jamie Freed and Sam Holmes

Our Standards: Thomson Reuters Trust Principles.

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