Stocks were mixed, and sterling was affected as inflation slowed in the UK

SYDNEY (Reuters) – Stock markets mixed on Wednesday as growth fears pulled down China, while futures rose elsewhere after British inflation caught a one-off surprise and U.S. data boosted hopes that the world’s largest economy could avoid a recession.

UK headline CPI fell to 7.9% yoy in June, against expectations of 8.2%. Core inflation fell to 6.9% from a three-decade peak of 7.1%. The British pound fell 0.6% to $1.2962, and FTSE futures rose 0.5%.

Earlier, MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 0.6%, down 1.2% for the Hang Seng Index (.HSI).

Japan’s Nikkei (.N225) rose 0.9%, touching a two-week peak. US futures were flat and European futures were up 0.3%.

Headline US retail sales data came in below expectations, but core sales, which exclude food, fuel and building materials, rose 0.6% in June as economists raised GDP forecasts.

“You can sense a slight downside potential,” said Tapas Strickland, head of market economics at the National Australia Bank in Sydney. “Core inflation is coming down and there is momentum from the consumer.”

The Federal Reserve’s Atlanta-based GDP tracker now has the US economy growing 2.4% annually in the second quarter, slightly higher than its forecast of 2.3% the week before.

Shares of major US banks rose sharply on strong results. Shares of Microsoft (MSFT.O) rose 4%, adding $100 billion to market value, after the company announced fees for artificial intelligence features in office software, a big first step in monetizing the potential of artificial intelligence.

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

Back bloating

British inflation is the latest downward surprise in major economies, following Canada on Tuesday and the United States last week. While still uncomfortably high, a temporary rally in gold bonds could extend if traders believe there are fewer price hikes.

In addition to the dollar’s slide, the pound sterling fell 0.6% to a one-and-a-half-month low of 86.66 pence per euro.

It was a different story in New Zealand, where inflation came in at 6% yoy, slower than the 6.7% reading in the previous month, but above expectations. It raised barter rates for two years as prices in the markets stayed higher for longer.

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

ECB Governing Council member Claes Nott said on Tuesday that increases beyond next week’s meeting are “by no means certain”, pushing the euro off a 17-month high. It was last traded at $1.2220.

“This is probably the first time that a well-known hawk within the ECB has supported the market view that we are near the end of the cycle of trolling in Europe,” said Chris Weston, head of research at Pepperstone in Melbourne.

The comments also led to a rally in European bonds, gold and treasuries which spilled over into Asian sovereigns on Wednesday.

The 10-year US Treasury yield fell 2 basis points, 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 BoJ governor stuck to his text that policy shifts are still some time away.

Brent crude futures settled at $79.42 a barrel, after rising on Tuesday. Gold held on to the gains it made as yields fell and bought $1,975 an ounce.

Editing by Lincoln Feast, Jamie Freed, and Sam Holmes

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