Global stocks were flat on Tuesday, losing some of their momentum as the US dollar managed to recover some of yesterday's losses a day ahead of key US inflation data that could influence when or whether the Federal Reserve raises rates further.
Traders remain cautious as they have plenty to watch on Tuesday ahead of key US data and the European Central Bank meeting on Thursday. Meanwhile, traders also got further indications after UK labor market data helped reinforce the view that the rate hike expected by the Bank of England next week could be the last.
Europe's STOXX 600 index pared early gains and fell 0.2%, weighed down by a drop in shares of German software company SAP, which reflected a pre-market decline of 10% after the company issued a Q2 earnings forecast below analysts' targets.
London's FTSE 100 was the main contributor, up 0.3% after British jobs data pushed the pound lower and further made British shares more attractive to foreign investors. Britain's labor market showed more signs of easing in the three months to July based on data shown on Tuesday. This suggests a weaker economy is causing slower inflation, reducing pressure on the Bank of England to raise rates further.
Two major macroeconomic events this week, the US CPI and the European Central Bank meeting will be the main focus. Markets expect US figures, due on Wednesday, to show one-year core inflation fell to 4.3% in August, although the headline number is expected to rise to 3.6%.
"A lower-than-expected certificate is likely to slow the rise of the US dollar while a higher (certificate) may potentially undermine risk sentiment as it will reinforce market expectations for further rate hikes, and this may increase the strength of the dollar," said OCBC strategist Christopher Wong
Meanwhile, the ECB will hold a meeting on Thursday. Markets think it is more likely that the central bank will leave rates unchanged than raise them by 25 basis points, although the latter is still under consideration.
