LONDON: Stock markets dropped on Tuesday as investors await key US inflation data and track President Joe Biden’s battle with Republicans over the debt ceiling.

Wall Street indices were down in morning trading, while major European stocks closed flat or in negative territory.

London stocks fell into the red as investors returned from a long holiday weekend marking the coronation of King Charles III.

Traders were waiting for Wednesday’s US inflation data that will shape the Federal Reserve’s interest-rate policy.

A drop in the inflation reading in recent months has fanned hopes that the Federal Reserve will soon pause its tightening campaign and even begin cutting rates by the end of the year, with the banking crisis reinforcing that view.

“US inflation data... will play a key role in shaping the Fed’s interest rate plans moving forward,” said Nigel Green, head of financial advisory firm deVere Group.

After lifting borrowing costs last week, officials hinted at a possible hold at their June meeting.

“We’ve finally reached the point at which the Federal Reserve may be at the end of its tightening cycle and we can start to look forward to when it can feasibly begin to ease policy in order to offset any shock to the economy,” said Craig Erlam, senior market analyst at trading platform OANDA.

The Bank of England will also announce its latest monetary policy decision on Thursday, with analysts expecting another hike with UK inflation holding stubbornly above 10 per cent.

Published in Dawn, May 10th, 2023