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World shares, dollar hit pause ahead of U.S. CPI, ECB meeting

Global shares hovered near a record high and the dollar also held steady on Thursday, eyeing U.S. inflation data for any sign the Federal Reserve could start tapering its massive stimulus.

Risk assets have remained buoyant in recent weeks as central bankers on both sides of the Atlantic signal their willingness to keep the monetary taps on until the post-pandemic recovery takes hold, believing inflationary pressures to be short-lived.

Yet April’s surprisingly strong U.S. inflation print spooked some, leading to a cautious run in to the May numbers later on Thursday in case of another upside surprise.

“The Fed have done a very good job of being unified around their transitory message and the market buys it for now. That’s also been supported by the fact that the last couple of jobs reports were weaker than the consensus expectations,” said Deutsche Bank analyst Jim Reid in a note to clients.

Lagging in the pace of its recovery from COVID-19, the European Union’s central bank is set to keep rates unchanged when it meets later in the session, despite the most recent inflation print passing the target of just under 2%.

Ahead of both key events, market sentiment remained subdued with MSCI’s broadest gauge of global stocks flat at 715.89 points, just off a record high of 718.19 hit last week.

In early European trades, the pan-regional STOXX Europe 600 index rose 0.1% following gains overnight in Asia, where MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5%.

U.S. stock futures pointed to a flat open on Wall Street.

Overnight, fixed income markets were the big movers, with some analysts pointing to a setback to more U.S. stimulus efforts, while others suggested a likely clearing out of short positions in U.S. government bonds ahead of the May CPI.

Short positions in Treasuries were the highest since 2018, according to JP Morgan positioning data last week.

The yield on benchmark 10-year U.S. Treasury notes was last at 1.4907%, edging up slightly from the prior day’s 1.4890%, but some way off the June high of 1.6270%.

Ahead of the U.S. CPI data, analysts polled by Reuters said they expected a rise of 0.4% in May, taking the annual pace to 3.4%.

“A significant upside surprise in inflation could tilt the Fed taper discussion to sooner rather than later, though the majority would still be looking for substantial progress toward maximum employment before considering tapering,” ANZ economists wrote in a note.

The number is also likely to be key for gold as a higher print and the subsequent tapering fears could reduce the yellow metal’s luster. In early European deals, gold was trading down 0.3% at $1,882.5 an ounce.

Elsewhere, oil prices fell as inventory data in the United States, the world’s top oil consumer, showed a surge in gasoline stocks that indicates weaker-than-expected fuel demand at the start of summer, the country’s peak season for motoring.

Brent crude futures were last down 37 cents at $71.85 a barrel, while U.S. crude futures were 35 cents lower at $69.61 a barrel.

Activity was muted in the currency market with the dollar flat against a basket of major currencies.
Source: Reuters (Reporting by Simon Jessop in London and Swati Pandey in Sydney; Editing by Ana Nicolaci da Costa and Christopher Cushing)

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