Despite fresh slippage in oil prices, U.S. Treasury yields pushed higher early on Wednesday – with two-year yields at their highest in over a week. Wednesday’s upcoming 20-year bond auction probably hasn’t helped.
But the April UK inflation miss also colored the darker bond mood in Europe.
Even though headline annual consumer price growth of 2.3% is almost a full percentage point below the March reading, and now as close to the BoE’s 2% target as makes no difference, it was heavily influenced by a big drop in household energy tariffs and above the 2.1% forecast.
Worriers pointed to much higher services inflation last month. And even though one-off annual price changes there may be another distortion, ‘core’ UK CPI inflation is still running at 3.9% – even while annual producer output deflation is simultaneously as deep as 1.6%.
The messiness of the overall picture may make the BoE hesitate in easing for a bit longer and money markets effectively wiped out the chances of a June rate cut from 50-50 before the release.
In what looks like a possible overreaction, an August cut is now even seen to be in the balance. UK government bond yields jumped to a three-week high and sterling hit its highest in a month.
Elsewhere in Europe, markets shivered a bit on concerns about an escalating tit-for-tat trade war between China and other western economies.
European automakers fell 1.9% to a more-than-three-month low, with shares of Mercedes-Benz and Volkswagen falling.
China should raise its import tariffs on large gasoline-powered cars to 25%, a government-affiliated auto research body expert told China’s Global Times newspaper as the country faces sharply higher U.S. auto import duties and possibly additional duties to enter the EU.
Back on Wall St, stock futures were marginally in the red after notching modest gains on Tuesday. The dollar was firmer. Global stock markets were slightly weaker.
