Stocks mixed, pound weighed as UK inflation slows

SYDNEY, July 19 (Reuters) – Stock markets were mixed on Wednesday with growth concerns weighing on China while elsewhere futures rose after British inflation came in surprisingly weak for once and U.S. data raised hopes the world’s biggest economy can avoid recession.

Headline UK CPI fell to 7.9% year-on-year in June, against expectations of 8.2%. Core inflation fell to 6.9% from a three-decade peak of 7.1%. Sterling fell 0.6% to $1.2962 and FTSE futures rose 0.5%.

Earlier MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was dragged 0.6% lower with a 1.2% drop for the Hang Seng (.HSI).

Japan’s Nikkei (.N225) rose 0.9% to hit a two-week high. US futures were flat and European futures rose 0.3%.

Overall US retail sales data came in below forecasts, but core sales that exclude food, fuel and building materials rose a solid 0.6% in June, prompting economists to lift forecasts for gross domestic product (GDP).

“You can sense the likelihood of a soft landing,” said Tapas Strickland, head of market economics at National Australia Bank in Sydney. “Core inflation is on the way down and there is momentum from the consumer.”

The Atlanta Fed’s influential GDP Now tracker has the US economy growing at an annualized 2.4% in the second quarter, slightly higher than the 2.3% forecast a week earlier.

Major US bank stocks rose sharply on strong results. Microsoft ( MSFT.O ) shares rose 4%, adding $100 billion in market value, after the company announced fees for artificial intelligence features in office software, a major first step in cashing in on AI’s potential.

Tesla ( TSLA.O ), Goldman Sachs ( GS.N ) and Netflix ( NFLX.O ) report earnings on Wednesday.

INFLATION DECREASES

UK inflation is the latest downside surprise in major economies, following Canada on Tuesday and the US last week. Although still uncomfortably high, a temporary uptick in gilts could be extended if traders expect fewer interest rate hikes to come.

In addition to falling on the dollar, the pound fell 0.6% to a 1-1/2 month low of 86.66 pence against the euro.

It was a different story in New Zealand, where inflation came in at 6% year-on-year, slower than a reading of 6.7% a month earlier but above expectations. Two-year swap rates rose as markets priced in interest rates stayed higher for longer.

The New Zealand dollar jumped to $0.6315 before falling back to $0.6259 as the US dollar rallied with some help from a weaker euro.

European Central Bank (ECB) board member Klaas Knot said on Tuesday that hikes beyond next week’s meeting were “by no means a certainty”, knocking the euro off a 17-month high. It last traded at $1.2220.

“This is perhaps the first time a known ECB hawk has supported the market’s view that we are nearing the end of the tour cycle in Europe,” said Chris Weston, head of research at broker Pepperstone in Melbourne.

The remarks also led to a rally in European bonds, gilts and government bonds that extended to Asian states on Wednesday.

The benchmark 10-year US Treasury yield was 2 basis points lower at 3.7717%. EUR/GVD

The yen fell to a one-week low of 139.43 per dollar and Japanese government bonds rose after the Bank of Japan governor stuck to his script that policy changes are still some way off.

Brent crude futures were steady at $79.42 a barrel after gains on Tuesday. Gold held gains as yields fell, buying $1,975 an ounce.

Editing by Lincoln Feast, Jamie Freed and Sam Holmes

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