Stocks rise, dollar retreats ahead of inflation data

Global shares rose and the dollar eased on Tuesday ahead of U.S. inflation data that could support a quicker end to Federal Reserve rate hikes, while the prospect of China propping up economic growth helped lift commodities like oil and copper. Markets are awaiting U.S. inflation data on Wednesday to see if price pressures are continuing to moderate, which could provide clues on the interest rate outlook.

The MSCI All-World index rose 0.3%, lifted by gains in European shares, as the STOXX 600 rose 0.35% in early trading, and by Chinese equities in Asia, following the extension of support to the property sector. U.S. stock index futures rose 0.1-0.2%, suggesting a modest rise at the opening bell.

Investors were digesting comments from several Federal Reserve officials on Monday who said the level of inflation warranted additional rate hikes but the central bank is nearing the end of its current monetary policy tightening cycle. Economists polled by Reuters expect the consumer price index to have risen by 3.1% in June, after May's 4% increase. This would be the lowest reading since March 2021. The core rate is expected to have dropped for a third month to 5% from 5.3%, but this is still more than double the Fed's 2% target.

Last week's employment report showed far fewer workers than expected had been added to non-farm payrolls last month unleashed a wave of selling of the U.S. dollar, but did little to shift the needle in terms of rate expectations. "(Market) movements, especially between the jobs report and inflation when they're so close together, I take with a relative pinch of salt," OANDA market strategist Craig Erlam said.

"There is a massive eye on tomorrow's inflation data - it comes to late in the day for the July meeting. That hike is basically sealed and it would take something pretty weak on the inflation side to change that," he said.

The dollar index, which measures the performance of the U.S. currency against six others, was last down 0.2% on the day and around its lowest in two months, in line with a retreat in U.S. Treasury yields. The yield on the benchmark 10-year note was last down 4 basis points at 3.964%, having broken below 4% the day before.

"While there is increasing evidence of near-term disinflationary trends, questions remain as to whether inflation will persist at uncomfortably high levels in the medium-term," Deutsche Bank strategist Jim Reid said. The Japanese yen rose to one-month highs against the dollar, leaving the U.S. currency down 0.6% on the day at 140.51, tracking the drop in Treasury yields.

Meanwhile, the prospect of a boost to the broader Chinese economy helped push up the price of crude oil and other industrial commodities such as copper and iron ore. Chinese regulators on Monday extended some policies in a rescue package introduced in November to shore up liquidity in the embattled real estate sector.

Brent crude, which has struggled to pull clear of 18-month lows, was up 0.4% at $78 a barrel, while U.S. futures were up 0.5% at $73.35. Copper gained 0.5% on the London Metal Exchange to trade around $8,4000 a tonne. The price is heading for its first annual loss since 2018, in large part because of patchy demand from China.

Second-quarter earnings come out this week, with results due from some of Wall Street's biggest institutions, including JPMorgan, Citigroup and Wells Fargo. Analysts expect earnings to have shrunk 6.4% in the second quarter year-on-year, according to IBES data from Refinitiv.