Global stocks steady, lifted by Europe; dollar dips on China selling

By Herbert Lash and Naomi Rovnick

NEW YORK/LONDON (Reuters) -Global stocks were steady on Wednesday, with European equities outperforming as Italy soothed market nerves about a windfall tax on bank profit, while the dollar eased after data showed the Chinese economy slipped into deflation last month.

Wall Street opened mixed, with the tech-heavy Nasdaq and the lower on investor caution a day before the release of the Consumer Price Index for June. Some analysts believe data could show inflation bumped higher, despite mostly dovish comments from Federal Reserve officials this week.

Wall Street’s main indexes closed lower on Tuesday in a broad sell-off after Moody’s (NYSE:) downgraded the credit ratings of 10 small and mid-sized banks, casting a pall over the market.

Big banks extended losses, with Bank of America (NYSE:), JPMorgan Chase & Co (NYSE:) and Wells Fargo (NYSE:) all down.

“There still is some sticky inflation,” Tim Ghriskey, chief investment strategist at Inverness Counsel in New York said of the CPI report. However, Ghriskey expects investors to enter the market and bid up prices.

“We’ve seen this pattern for a while, it’s buying on the dip,” he said. “This is a market that people want to own and they’re putting money to work, especially on these little pullbacks like we’ve seen since month-to-date.”

MSCI’s gauge of stocks across the globe gained 0.01%, while on Wall Street, the fell 0.04%, the S&P 500 lost 0.24% and the dropped 0.8%.

In Europe, the pan-regional index rose 0.70% after Italy said a new tax on banking profits would not exceed 0.1% of a bank’s assets, reassuring investors who had expected a charge of as much as 0.5%. However, questions remain about a global trend of taxing bank windfalls.

“The burden-sharing of the costs and benefits from higher rates has a habit of becoming a political issue,” Deutsche Bank (ETR:) strategist Jim Reid said.

European bank stocks rose 1.4% and Italy’s share index gained 1.6%.

Data out of China on Wednesday showed producer prices in the world’s major manufacturing hub fell for a 10th consecutive month in July. China’s consumer price index also tipped into deflation for the first time since February 2021. The data followed disappointing trade figures out of China a day earlier.

China’s post-pandemic recovery has slowed as demand at home and abroad weakened, leading to fears the country is entering an era of slow growth akin to the period of Japan’s “lost decades,” when consumer prices and wages stagnated for a generation.

Alleged dollar selling by state-owned Chinese banks helped the yuan rally from a one-month low, dealers said. The Chinese central bank’s stronger-than-expected exchange-rate fixing before the open signaled its discomfort with the yuan’s recent declines.

The dollar fell 0.2% against the yuan to 7.2246, and the , a measure of its performance against six others, slid 0.2% to 102.30, reversing Tuesday’s rise.

Treasury yields dipped in choppy trade before the U.S. Treasury Department sells $38 billion in 10-year notes, testing demand for the debt after a sharp increase in yields last week.

Benchmark 10-year yields hit almost nine-month highs on Friday after the Treasury earlier last week raised its borrowing forecast for the coming quarter and said it would increase auction sizes across the board.

With many investors betting that the Federal Reserve is near or at the end of its tightening cycle, the increase in longer-dated yields may help to boost demand at this week’s auctions.

The yield on fell 1.2 basis points to 4.012%, and the two-year’s yield, which typically reflect interest rate expectations, rose 1.2 basis points to 4.770%.

Oil hit new peaks with touching the highest price since April, as tighter supply owing to Saudi and Russian output cuts offset concerns over slow demand from China and a report showing rising inventories.

U.S. crude rose 1.99% to $84.57 per barrel and Brent was at $87.59, up 1.65% on the day.

dropped 0.3% to $1,919.44 an ounce.