The luxury sector lifts from Europe as markets prepare to test the US CPI

LONDON (Reuters) – European stock markets rose on Thursday, supported by gains in luxury stocks after China eased some pandemic-era restrictions, while the dollar weakened ahead of US inflation data that could influence the Fed’s policy path.

Economists polled by Reuters expect U.S. consumer inflation in July to rise slightly to 3.3% annually, while the core rate, which excludes the volatile food and energy sectors, is expected to rise 0.2% in July, for an annual gain of 4.8%.

“We will see our first headline inflation hike after 12 consecutive months of declining prices,” said Ben Laidler, Global Markets Analyst at eToro.

“It will be a test of the moderate narrative that has supported the rally, which is that inflation will come down and interest rates are allowed to come down,” Laidler added.

Markets are pricing in a more than 50% chance that the Fed will raise interest rates this year The CME FedWatch tool appearswith moderate inflation and increasing the probability of a soft landing.

The pan-European benchmark STOXX 600 (.STOXX) rose 0.5 percent, supported by gains in the luxury goods sector (.STXLUXP) after China lifted a ban on group tours in the United States and other major markets.

Among the winners was LVMH (LVMH.PA), Europe’s largest company by market capitalization, which rose 2%.

France’s CAC 40 (.FCHI) – which has a heavy weighting of luxury names – outperformed Europe, rising 0.9%, while Germany’s DAX (.GDAXI) rose 0.5% and Britain’s FTSE 100 (.FTSE) was little changed, Affected by the number of large cap companies that go without a dividend.

Wall Street futures were pointing higher.

CHINA WOES

Asian stocks remained stuck near their lowest level in two weeks, still reeling from China’s slide into recession and the announcement of a US ban on investments in China in sensitive technologies such as computer chips.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was little changed and looks set to post a second straight week of losses. The technology sub-index (.MIAPJIT00NUS) fell to its lowest level in more than two months.

Chinese data on Wednesday showed a contraction in consumer prices and further declines for factory gate prices in July, exacerbating concerns about the faltering nature of the post-pandemic recovery.

China is the first G20 economy to record a year-on-year decline in consumer prices since Japan’s last major negative CPI reading in August 2021.

Rodrigo Cattrell, chief currency analyst at the National Australia Bank, said it highlights “the need for more fiscal support, if Beijing is to avoid the possibility of a deflationary trap”.

In currency markets, the dollar index, which tracks the greenback against six peers, fell 0.4%. The Japanese yen fell to a one-month low of 144,135 per dollar, heading closer to the key psychological 145 level.

Meanwhile, the yield on the 10-year Treasury fell 1 basis point at 4.0011%, after slumping Wednesday after a well-received 10-year auction, with markets on edge due to an oversupply of bonds over the coming quarter.

“We have $1 trillion going down the pipe over the next three months,” said Laidler of eToro.

“Any sign that the markets are digesting that well, which we got yesterday, will be treated very well.”

Bond strategists polled by Reuters expect US Treasury yields to decline in the coming months, with the median forecast for the 10-year Treasury yield at 3.60% at six months.

Oil prices were falling after earlier hitting their highest levels since November 2022, benefiting from the recent extensions of production cuts by Saudi Arabia and Russia.

US crude fell 0.4% to $84.08 a barrel, and Brent crude was at $87.40, down 0.2% for the day.

All eyes are also on European gas prices after they jumped as much as 35% on Wednesday, hitting their highest level since June 15 after news of possible strikes on Australian LNG facilities raised concerns about shipping shipments to Asia.

On Thursday, the Dutch front-month contract fell 5% to €39.46 per MWh, paring some of the previous day’s gains.

(Reporting by Samuel Indyk and Ankur Banerjee) Editing by Edwina Gibbs, Sam Holmes, Susan Fenton and Alexandra Hudson

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