* Europe's STOXX down 0.43%, U.S. futures flat
* Markets await U.S. CPI report at 1230 GMT
* Economists expect 8.7% U.S. inflation - Reuters poll
TOKYO/LONDON, Aug 10 (Reuters) - Stocks trembled on
Wednesday while major currencies held steady as investors were
reluctant to place bets ahead of the release of U.S. inflation
data that could point to the Federal Reserve's appetite for more
aggressive rate increases.
The Consumer Price Index (CPI) report will be released at
1230 GMT, with markets watching for signs that inflation eased
in July despite last week's unexpectedly strong U.S. jobs
The market is pricing in a 69.5% chance of a 75 bps rate
increase at the Fed's next meeting. Economists polled
by Reuters expect the CPI to show year-on-year headline
inflation of 8.7%, far above the Fed's target of 2%
but down from last month's red-hot 9.1%.
Europe's benchmark STOXX index fell 0.43%,
following a bigger fall of 1.2% in the MSCI's broadest index of
Asia-Pacific shares outside Japan, while Japan's
Nikkei closed down 0.65%.
"I dont think that we are through the bear market woods yet
recession risks loom and I dont think the Fed is done with
its aggressive belt tightening," said David Chao, a global
market strategist for Asia Pacific ex-Japan at Invesco.
"I dont think markets have fully discounted these
variables. This weeks inflation data will certainly give us
more clarity of the Feds near-term policy outlook."
U.S. markets looked set to open broadly flat, with S&P 500
futures down 0.06%.
The dollar was steady, having paused from a retreat that
began in the middle of July. The dollar index, which
measures the safe-haven greenback against six major peers, was
"A strong CPI print this week could mean the Fed is back to
its aggressive rate hiking path, which would re-strengthen the
USD," said Chao.
Euro zone bond yields held stead, with Germany's 10-year
yield, the benchmark for the bloc, down just one basis point at
Analysts noted the U.S. data due Wednesday represent a
lagging indicator that might not yet show inflation softening,
and yield curves could flatten or invert further.
A flattening yield curve is usually seen as a sign of an
economic slowdown and inversions as predictors of recessions. As
measured by the gap between two- and 10-year yields, the U.S.
curve is deeply inverted at below minus 40 bps.
Oil prices fell after industry data showed U.S. crude
inventories unexpectedly rose last week, signalling a possible
hiccup in demand. Brent crude futures fell 61 cents to
$95.73 a barrel, while U.S. West Texas Intermediate (WTI) crude
was down 70 cents to $89.82.
Gold also pared gains and was down 0.26% at $1,789.5
an ounce. It briefly broke through the $1,800 barrier overnight
for the first time in more than a month.
The cryptocurrency bitcoin, which often tracks tech stocks,
was down 0.76% at $22,974.
(Reporting by Sam Byford and Lawrence White; Editing by Lincoln
Feast, Robert Birsel)