Inflation questions keep stocks in check

LONDON/SYDNEY (Reuters) – World stocks were pinned down on Thursday as investors awaited U.S. data expected to offer clues on inflation, with further pressures widely seen as sparking a scaling back of central banks’ giant stimulus packages.

The Euro STOXX 600 lost 0.2%, with German shares down 0.5% and London’s main index making slim losses. France gained 0.1%.

Losses of around 0.2% in energy stocks were offset by 1.2% gains in the mining sector, while British bank HSBC gained 0.1% after a move to exit U.S. retail banking to focus on Asia.

Wall Street futures gauges pointed to losses of around 0.2%.

In focus was U.S. gross domestic product and jobless claims numbers expected later in the day. Investors also held back major bets before the monthly U.S. personal consumption report, due on Friday.

“We still believe inflation will not be transient, but will persist – this is where I think we differ with central banks,” said Jeremy Gatto, a portfolio manager at Unigestion.

For many investors, rising inflation means the U.S. Federal Reserve will slowly but surely edge towards a discussion about tightening monetary policy.

The prospect lent support to the dollar, which has been heavily shorted of late.

The MSCI world equity index, which tracks shares in 49 countries, was flat.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan clawed back losses to trade flat at 695.37, not too far from Wednesday’s high of 696.76, a level last seen on May 10.

TAPER TALK?

Global equities markets have been supported by a concerted effort from major central banks, which have pumped trillions of dollars into financial markets since last year while reiterating their lower-for-longer interest rate stance.

U.S. Federal Reserve Vice Chair Richard Clarida said this week recent inflation pressures would “prove to be largely transitory”, though he did add that policymakers will be at a point to begin discussing tapering in upcoming meetings.

The Fed Vice Chair for supervision, Randal Quarles, suggested that at some stage it will become important for the U.S. central bank to discuss plans to tighten its asset purchase programme.

With tapering on the agenda, the U.S. dollar index held on to Wednesday’s gains and was steady at 89.992.

“Whether (central banks) are going to do something early in the very small way – just to indicate they are starting and do it very gradually – or do something bigger next year, they’re the two really big scenarios for most investors,” said Shaniel Ramjee, senior investment manager at Pictet Asset Management.

The Chinese yuan hit a three-year high as China’s central bank kept to the sidelines.

The euro edged up to $1.22030, after losing ground a day earlier after the European Central Bank’s Executive Board Director Fabio Panetta said it was too early to taper its emergency bond buying programme.

The New Zealand dollar was among the best performing currencies overnight after hints of a 2022 rate hike by the Reserve Bank of New Zealand. On Thursday, it retreated from a three-month top of $0.7317 and was last as $0.7294.

In commodities, gold prices hovered near $1,900 per ounce, after hitting its highest since Jan. 8 at $1,912.50. [GOL/]

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