By Mike Bird
European stocks and U.S. futures were roughly flat in late European morning trading on Tuesday amid signs that the global reflation that powered 2016's late rally is offering less support to markets in the new year.
The Stoxx Europe 600 index rose by 0.03%. Banks listed on the Stoxx 600 index fell by 0.5%.
U.S. futures were little changed, up 0.03% for the S&P 500 and 0.02% for the Dow Jones Industrial Average.
In currency markets, sterling continued to fall against the dollar, dropping 0.15% to $1.214 after a fall of more than 1% on Monday. The Wall Street Journal dollar index, which measures the U.S. currency against a basket of others, was down0.11%.
Some of the markets that gained in last year's reflation trade, in which the prospect of stronger economic growth and inflation boosted assets such as shares and the dollar, are struggling to maintain that momentum.
Still, there were signs on Tuesday that the inflation that economists widely predicted is stirring.
In Asia, Chinese producer price data showed a sharp rise in December, increasing by 5.5% year-over-year, up from 3.3% in November.
The return of modest inflation, fueled particularly by rising oil prices, has been a major theme for markets in recent months.
"Inflation is now picking up towards those 2% targets in the U.S. and U.K., and it's heating up at a faster pace in emerging markets too," said Nandini Ramakrishnan, global market strategist at J.P. Morgan Asset Management.
"This inflation is quite healthy for U.S. equities, particularly some sectors like banks and financials," she added.Consumer prices rose by 1.2% year-over-year in the U.K. in November, and 1.7% in Germany and the U.S. during the same period.
"Europe will particularly be a focus as thoughts again turn to inflation risks in the face of their accommodative stance," analysts at Lloyds Bank wrote in a research note Tuesday.
But aside from the effect of rising commodity prices, some analysts are skeptical that the eurozone will see inflation driven by structural factors like wage growth.
"Second-round effects like higher wage dynamics are not yet visible in the eurozone and we doubt that they will become an issue over the coming months," said David Kohl, head economist at Swiss bank Julius Baer.
The FTSE 100, the U.K.'s flagship equity index, picked up more than other European markets Tuesday with a rise of 0.41%. The index tends to rise as sterling falls, since the companies listed on the index make more than 70% of their revenues abroad.
The index has closed at fresh record highs for eight consecutive trading days--if it closes at another record high, it would be the longest streak in 30 years.
Japan's Nikkei closed down 0.79%, following a public holiday. Hong Kong's Hang Seng closed up 0.83%.
In international debt markets, Germany's 10-year bund fell to 0.277% from as high as 0.296% earlier in the morning. U.S. Treasury yields were roughly flat at 2.378%.
Write to Mike Bird at Mike.Bird@wsj.com
(END) Dow Jones Newswires
January 10, 2017 07:34 ET (12:34 GMT)
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