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European stocks drifted lower following a week of new records as investors look ahead to key inflation data out of the US later in the week.
The region-wide Stoxx 600 index fell 0.3 per cent while the UK’s FTSE 100 slipped 0.1 per cent, led by a fall in commodity prices. Oil and mining companies BP, Royal Dutch Shell and Antofagasta were among those that dragged on Monday.
Oil sustained further losses on top of last week’s decline as markets worried that the spread of the Delta variant of coronavirus could depress demand. Global benchmark Brent crude fell 4 per cent on Monday to $67.92 a barrel, extending steep losses of more than 7 per cent last week, as China tightened restrictions once more in a bid to halt the transmission of the virus that has spread rapidly in Asia.
Data released over the weekend showed China’s imports and exports had slowed more than expected in July due to flooding and virus fears. Despite this, markets in Asia edged higher as concerns about Beijing’s recent crackdown on technology and education companies receded. Hong Kong’s Hang Seng index gained 0.4 per cent while the onshore CSI 300 index of companies based in Shanghai and Shenzhen gained 1.3 per cent.
Futures contracts indicated that the blue-chip S&P 500 index would drop 0.1 per cent when markets open in New York while the tech-focused Nasdaq Composite would gain 0.1 per cent.
Following a strong jobs report out of the US on Friday, investors are now looking ahead to Wednesday’s release of monthly inflation numbers. Economists polled by Bloomberg forecast consumer prices to have ticked up 0.5 per cent in July over the month before, a slower pace than in June. On a year-on-year basis, the inflation rate is expected to have eased to 5.3 per cent from 5.4 per cent in June.
“Going through all of the earnings calls, inflation and costs if you run a word count is coming up a lot more than it used to,” said Kasper Elmgreen, head of equities at Amundi, referring to conference calls held by executives after disclosing financial figures.
A strong inflation reading will intensify speculation as to when the US Federal Reserve will rein in its ultra-supportive policies, which have buttressed the economy through the pandemic. Fed chair Jay Powell has continued to insist that most inflation is a transitory effect of the reopenings from global lockdowns, but the strong data may increase pressure on the US central bank to set out its plans to curtail its $120bn in monthly asset purchases.
“Which parts [of inflation] are transitory and a natural consequence of a supply chain which can’t cope with the extreme resurgence in demand? . . . I’m going to say that some of this is going to stay with us,” Elmgreen said.
Gold tumbled as much as 4.1 per cent in Asia trading on Monday to $1,691 a troy ounce. Activity is typically light in the metals market in the very early hours, something that can lead to outsize price movements. The precious metal cut its losses to about 1.2 per cent in London dealings.
Government bonds were steady on Monday after falling at the end of last week on the stronger-than-expected US jobs data. The yield on the benchmark US 10-year Treasury note, which moves inversely to its price, climbed 0.07 percentage points on Friday to hover around 1.297 per cent before pulling back to 1.28 per cent on Monday.
The euro was flat against the dollar, to purchase $1.1758, while the pound also fell 0.1 per cent to $1.3886.