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Global stocks advance ahead of U.S. inflation data

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LONDON — Wall Street was poised to join the global advance in stocks on Wednesday on hopes that U.S. inflation and earnings figures due later in the week point to a resilient economy and slower pace of interest rate hikes.

Markets were largely subdued, however, as investors waited to see how Thursday’s U.S. consumer price index (CPI) could influence the Federal Reserve’s thinking.

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Meanwhile, the dollar was steady and gold was flat after scaling an eight-month peak on bets that the U.S. inflation data will show a slowdown in price increases.

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Crude oil prices shrugged off early losses to move higher, while copper rose above $9,000 a tonne for the first time since June on hopes that Chinese demand will rebound after the country removed its COVID-19 restrictions.

U.S. stock index futures were firmer.

Stocks continued to build on their gains for 2023, with investors hoping there will be no repeat of last year’s rout and that any economic recession will be shallow or even avoided.

The MSCI all country stock index was up 0.16%, adding to the year’s gain of nearly 3% after a slide of nearly 20% last year, which left analysts pondering how far they should pivot from stocks to bonds.

“We are having a warmer winter, recession risks are diminishing and consequently there is a perception that things might not be as bad, and that is what is driving equity markets higher, particularly in Europe,” said Mike Hewson, chief markets analyst at CMC Markets.

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In Europe, the STOXX index of 600 companies was up 0.5% at levels last seen around the middle of 2022.

Mark Tinker, chief investment officer at Toscafund asset management in Hong Kong, said that after the bear market of 2022 investors were trying to decide whether there will be further downside this year before markets stabilize.

“What we have now is the division of opinion – have we got a second leg coming?” Tinker said, adding that this was leading investors to make small bets in markets, helping to set the more positive tone.

“There is no real dominant conviction to it yet. Right now people are tilting a bit away from ‘there’s going to be a second leg’,” he said.

The U.S. earnings season moves into higher gear on Friday, with results from big banks such as Bank of America, JPMorgan Chase, Wells Fargo and Citigroup to offer clues on the economic outlook.

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Staff at Goldman Sachs were braced for news on whether they will keep their jobs in a cull instigated after a massive slowdown in corporate dealmaking since the war in Ukraine.

CPI WATCH

Investor attention is squarely on the U.S. consumer price data due on Thursday. The figures are expected to show December’s headline annual inflation at 6.5%, down from 7.1% in November.

Thursday’s data will be crucial in determining what the Fed is likely to do with interest rates in its next meeting at the start of February.

“With some expectations that Powell would likely push back on easing financial conditions, equity markets celebrated the lack of any clear guidance on policy direction,” Saxo strategists said.

ING bank said business surveys point to a slowing U.S. economy and, if inflation allows, the Fed will be in a position to ease policy later this year.

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MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2%, touching a six-month high, while Japan’s Nikkei gained 1%. Australia’s S&P/ASX 200 index rose 0.9%.

Hong Kong’s Hang Seng index rose 0.5%, lifted by hopes of a strong economic rebound from the COVID-19 pandemic and discounted stock values.

The dollar index, which measures its performance against six major currencies, was up 0.184% at 103.44 after hovering close to a seven-month low.

The Japanese yen was up 0.4% at 132.8 per dollar while sterling weakened by 0.3% to $1.2115.

The yield on 10-year Treasury notes was lower at 3.5853%. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down at 4.492%.

Euro zone government bond yields fell as another drop in energy prices prompted investors to take a more upbeat view of the inflation outlook.

U.S. crude oil was up 0.7% at $75.66 a barrel while Brent crude gained 0.7% to $80.72.

(Reporting by Huw Jones and Ankur Banerjee Editing by Bradley Perrett, Himani Sarkar, Tomasz Janowski and David Goodman )

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