Stocks simmer near record highs ahead of US inflation data

LONDON: Global shares hung near record highs on Tuesday, buoyed by better than expected Chinese export data as markets awaited the release of US inflation data for further clues about the global economic recovery.

The surprisingly strong Chinese data implied that global demand remained strong and helped reassure investors that the world economy was recovering from the COVID-19 pandemic, despite the spread of the Delta variant.

Focus now shifts to the release of US consumer price data, expected to tick marginally lower from last month, and likely to further feed debate about when US stimulus may be scaled down.

MSCI's all-country equity index added 0.1%, having touched a record high earlier in the day. The pan-European STOXX 600 index was flat after hitting a record high in early trading.

In the US, S&P 500 futures were unchanged. But futures for the Nasdaq, tech-heavy and benefiting from lower yields, rose 0.3%.

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MSCI's broadest index of Asia-Pacific shares outside Japan rose 1%, its best daily gain since late June, led by a 1.6% rise in Hong Kong, where tech stocks rose broadly. Japan's Nikkei was up 0.5% while Australian shares closed broadly flat.

A Reuters poll put expectations for Tuesday's inflation data at 4.9% for the month of June when the numbers are released at 1230 GMT, compared to 5% the month before.

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"Today will be one of the last numbers that are of strong inflation, because of the base effect, and from then we should have confirmation that inflation will be transitory," said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners. "Inflation will remain a key feature for markets as it will drive interest rates."

POWELL TESTIMONY

Investors are navigating a busy week, with the onset of US earnings season and a testimony by Federal Reserve Chair Jerome Powell, which will also be scrutinised for any indications on the timing of potential US tapering.

In Hong Kong, tech behemoth Tencent Holdings Ltd jumped 3.9% after China's antitrust regulator on Tuesday approved its plan to take China's No.3 search engine, Sogou Inc , private in a $3.5 billion deal.

"We have clearly seen a (new) round of corrections of the technology sector, which places a heavy weight on Hong Kong's stock market, due to concerns over a new round of regulatory crackdown following the probe into Didi. Against this backdrop, there is room for short-term rebound," said Zhang Zihua, chief investment officer at Beijing Yunyi Asset Management.

Overnight, Wall Street's main indexes closed at their highest levels ever, lifted by Tesla and bank stocks.

The S&P 500 banks index climbed 1.3% ahead of quarterly earnings reports this week from major banks. JPMorgan Chase rose over 1% and Goldman Sachs rallied more than 2%, fuelling the Dow's gains.

The next question is whether company earnings will support Wall Street's run higher.

S&P 500 companies' earnings per share for the June quarter are expected to rise 66%, according to IBES data from Refinitiv. JPMorgan, Goldman Sachs, Bank of America and other big banks kick off results from Tuesday.

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In the short term, equity markets have "considerable support from earnings revisions", said Michel Iglesias del Sol, managing director, Investment Strategy Advisory, Kempen Capital Management, who expects this season to mark the peak of the earnings rebound in the US, with Europe likely to peak in coming months.

"Equity valuations are high when compared to historical levels, but not when you compare them with other asset classes," he said.

DOLLAR STABLE

Concerns that increasing Delta variant cases around the world could derail a global economic recovery have fuelled appetite for safe-haven US Treasuries. The benchmark US 10-year bond yield fell last week to a five-month low of 1.25%.

While markets have since stabilised, yields are not far off last week's lows at 1.3577%.

Euro zone government bond yields have fallen in line with US Treasuries in recent weeks, and are running close to their lowest levels since early April.

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Germany's 10-year bond yield was unchanged at -0.30%, close to a three-month low of -0.344% that was hit last week.

In currency markets, the dollar hardly moved against major currencies ahead of the U.S. inflation data. The greenback was slightly stronger versus the euro at $1.1856 after rising more than 2% over the last month.

South Africa's rand dropped to a three-month low, slipping 1.2% to 14.4000 against the dollar, as violence esclated over the jailing of former president Jacob Zuma.

US crude ticked up 0.1% to $74.18 a barrel. Brent crude rose 0.3% to $75.40 per barrel.

Spot gold traded 0.1% up at $1,806.90 per ounce.