AFP

European stock markets and the dollar fell Wednesday ahead of a crucial US inflation report that could help set the the pace of future interest rate hikes by the US Federal Reserve. 

Analysts warn that if the reading exceeds forecasts, it could increase the possibility of further monetary policy tightening by the Fed, reinforcing expectations for a possible recession. 

The US central bank has said its decision on the timing and magnitude of the rate hikes will depend on data, as it attempts to tread a fine line between bringing down inflation from four-decade highs and not choking off recovery. 

Recent indicators showing a slowdown in activity had fuelled hopes that the Fed would be less hawkish. 

But a bigger-than-predicted jump in US jobs last month revived talk of a third straight three-quarter-point hike in September.

The Fed “will need to make sure inflation moves back towards target sustainably before contemplating pausing its tightening cycle”, said Carol Kong at Commonwealth Bank of Australia.

“A strong inflation outcome today will likely reinforce the (Fed) is still some way away from that point yet, and see markets re-adjust higher their expectations for US interest rates.”

The data on Wednesday come at a sensitive time for world markets, which have been buffetted by the war in Ukraine, supply chain snarls and rising China-US tensions over Taiwan.

While the latest earnings season has been less painful than feared, there are increasing signs that the economic slowdown is beginning to impact companies, with some major firms — including Apple and Amazon — providing downbeat outlooks.

Chip-maker Micron became the latest, saying revenue would likely come in at the low end of its forecasts in the fourth quarter owing to weak demand.

A day before, rival Nvidia unveiled disappointing results.

Elsewhere, oil prices remain stuck around six-month lows, even after news that supplies from Russia to three European countries through Ukraine had been halted as sanctions prohibited the processing of the transit payment.

Crude oil prices have essentially wiped out all the gains seen since Russia’s invasion of its neighbour in February as expectations of a recession hit demand forecasts.

But Edward Moya, analyst at Oanda trading group, said the market would not likely weaken further.

“Whatever crude demand destruction that occurs from a weakening global economy won’t be able to drag down oil prices much lower given how low the supply outlook remains,” he said. 

– Key figures at around 1100 GMT –

London – FTSE 100: UP 0.1 percent at 7,491.60 points

Frankfurt – DAX: UP 0.1 percent at 13,553.42

Paris – CAC 40: DOWN 0.1 percent at 6,484.03

EURO STOXX 50: DOWN 0.1 percent at 3,712.82

Tokyo – Nikkei 225: DOWN 0.7 percent at 27,819.33 (close)

Hong Kong – Hang Seng Index: DOWN 2.0 percent at 19,610.84 (close)

Shanghai – Composite: DOWN 0.5 percent at 3,230.02 (close)

New York – Dow: DOWN 0.2 percent at 32,774.41 (close)

Euro/dollar: UP at $1.0237 from $1.0213 Tuesday

Pound/dollar: UP at $1.2091 from $1.2071

Euro/pound: UP at 84.66 pence from 84.57 pence

Dollar/yen: DOWN at 134.97 yen from 135.12 yen

West Texas Intermediate: DOWN 1.3 percent at $89.35 per barrel

Brent North Sea crude: DOWN 1.2 percent at $95.12 per barrel

Elon Musk has sold nearly $7 billion worth of Tesla shares, according to legal filings, amid a high-stakes legal battle with Twitter over a $44 billion buyout deal.

The Tesla boss sold some 7.9 million shares between August 5 and 9, according to filings published on the Securities and Exchange Commission’s website on Tuesday.

“In the (hopefully unlikely) event that Twitter forces this deal to close and some equity partners don’t come through, it is important to avoid an emergency sale of Tesla stock,” Musk, the world’s richest man, wrote on Twitter late Tuesday.

Twitter is locked in a legal battle with the mercurial Tesla boss over his effort to walk away from the April agreement to buy the company, and a judge has ordered that a trial will begin in October.

Musk has filed a countersuit, accusing Twitter of fraud and alleging the social media platform misled him about key aspects of its business before he agreed to a $44 billion buyout.

The move comes after Musk sold around $8.5 billion worth of shares in the electric carmaker in April as he was preparing to finance the Twitter deal. He tweeted at the time: “No further TSLA sales planned after today.”

Tesla rose 3.4 percent to $879 before the start of regular trading Wednesday, while Twitter jumped 4.3 percent to $44.69, Bloomberg reported.

Musk has now sold about $32 billion worth of Tesla shares since November.

“He is cashing up for Twitter,” Charu Chanana, a strategist at Saxo Capital Markets told Bloomberg News. 

Chanana said she believed Musk may be attempting to take advantage of a Tesla share price rebound of about 35 percent since late May.

“The bear market rally has started to falter, and further repricing of Fed expectations could mean more pain for equities ahead, especially in tech.”

Analysts say Musk may continue selling Tesla stock.

“Musk said at the Tesla shareholder meeting that any weakness in the share price was a buying opportunity, and then 24 hours later started selling stock himself,” Jim Dixon, a senior equity sales trader at Mirabaud Securities, told Bloomberg News. 

Dixon added that it was “very unlikely” that Musk was finished selling Tesla stock.

Tesla share prices have been tied to the fate of Musk’s Twitter deal in recent weeks, first slumping over concerns that pursuing the deal could distract him and lead to unnecessary financial risk, and then rebounding when he said he wanted to abandon the takeover.

Musk’s deal to buy Twitter included a provision that if it fell apart, the party breaking the agreement would pay a termination fee of $1 billion under certain circumstances.

At a net worth of $250 billion, Musk tops the Bloomberg Billionaires Index, although he has lost $20.1 billion since the start of the year, mainly due to the decline in Tesla’s stock price.

— Bloomberg News contributed to this story —

Germany will offer tax relief worth 10 billion euros ($10.2 billion) to help workers cope with soaring inflation, Finance Minister Christian Lindner said Wednesday.

The package will raise base tax-free allowance as well as bring up the level from which the top income tax rate of 42 percent will apply. Families will also benefit from higher tax exemptions for dependent children.

Inflation in Germany reached 7.5 percent in July, fractionally lower than the 7.6 percent recorded in June, fuelled mainly by energy prices that soared following Russia’s invasion of Ukraine.

Lindner said his plan is aimed primarily at fighting the problem of employees who find themselves with a higher tax burden because they have received a pay increase to combat inflation.

As a result, the gain the workers have received is wiped out essentially by the higher taxes due.

The phenomenon, called “cold progression”, also typically hits lower incomes harder.

Lindner said 48 million Germans would be facing higher taxes from January 2023 if no relief was offered.

“For the state to benefit at a time when daily life is becoming more expensive… that is not fair and also dangerous for economic development,” said Lindner.

– Double whammy –

The tax relief measures come on top of a 30 billion euro package unleashed by Chancellor Olaf Scholz earlier this year to help consumers beat inflation.

The earlier package included a fuel tax cut and a public transport ticket valid across Germany priced at just 9 euros a month for June, July and August.

But it is clear that the clouds hanging over Europe’s biggest economy are only darkening as the country heads into the colder months.

The Ukraine conflict has derailed Germany’s hopes of finally shaking off the coronavirus pandemic and roaring back to growth.

With its export-oriented industries, Germany has been particularly vulnerable to the supply chain bottlenecks and raw material shortages caused by the pandemic. 

But now, Germans are also staring down the barrel of doubling energy bills, after Russia drastically curtailed its supply following its invasion of Ukraine.

The power crunch is not only nibbling away at consumers’ purchasing power but also hurting German industry, much of which relies on cheap energy supplies to manufacture exports.

Employees in Europe’s biggest economy are therefore facing the double whammy of higher costs and a growing threat of job losses as major companies mull idling some factories because it may no longer be cost effective to keep production lines running.

German growth stagnated in the second quarter of the year, but analysts have warned that a recession in the second half will be inevitable.

At their last forecast in March, the German government’s economic advisers estimated that gross domestic product will expand by 1.8 percent for 2022.