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European shares fall 1.3%, S&P 500 futures off 0.8% Dollar tops 137 yen ahead of US CPI, inflation expectations Banks start their earnings season from Thursday

SYDNEY/LONDON, July 11 (Reuters) – Shares fell on Monday as investors braced for a U.S. inflation report that could prompt another big rate hike and the start of an earnings season in which earnings will is under pressure. The STOXX index of European shares fell 1.3% (.STOXX), with S&P 500 futures down 0.8% and Nasdaq futures down 0.9%, as an upbeat June payrolls report on US raised expectations for a 75 basis point hike from the US Federal Reserve. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1.8 percent, while Chinese blue chips (.CSI300) lost 1.9 percent after Shanghai discovered a case of COVID-19 involving a new subvariable, the Omicron BA.5.2.1. read more Sign up now for FREE unlimited access to Reuters.com Register Bond yields and the rampant US dollar also rose, with the latter hitting a 24-year high against the yen. Underscoring the global nature of the inflation challenge, central banks in Canada and New Zealand are expected to further tighten policy this week. While Wall Street posted some gains last week, market sentiment will be tested by earnings from JPMorgan and Morgan Stanley on Thursday, with Citigroup and Wells Fargo the following day. Another hurdle will be Wednesday’s US consumer prices report, in which markets see headline inflation accelerating further to 8.8% but a slight slowdown in the core measure to 5.8%. An early reading of consumer inflation expectations this week will also have the Fed’s attention. “Unexpected weakness in these issues will be needed to reverse expectations of a 75 bps Fed rate hike on July 27, which rose from around 71 bps to 74 bps after the payrolls report,” said Ray Attrill, chief of FX strategy at NAB.

PARITY PARTY

Treasury yields rose about 10 basis points on the jobs report and the 10-year was at 3.09% on Monday, from a recent low of 2.746%. A hawkish Fed combined with recession fears, particularly in Europe, kept the greenback at 20-year highs against a basket of rivals. The dollar broke above 137.00 to hit its highest level since 1998 at 137.28 yen as the Bank of Japan remained dovish. read more Japan’s conservative coalition government is expected to increase its majority in an upper house election on Sunday, two days after the assassination of former Prime Minister Shinzo Abe. read more The euro continued to struggle at $1.0122, having fallen 2.4% in the past week to hit a two-decade low and a key reversal target at $1.0072. “With little economic relief on the horizon for Europe and US inflation data likely to mark a new high for the year and keep the Fed on an aggressive hike, we believe risks remain skewed in favor of the dollar,” said Jonas Goltermann , senior official. market economist at Capital Economics. “Indeed, we believe EUR/USD will break above par soon and may well trade some way through this level.” Rising interest rates and a strong dollar were a headache for underperforming gold, which was suffering at $1,739 an ounce, having fallen for four straight weeks. Oil prices also lost about 4% last week as demand concerns offset supply constraints. Data from China due on Friday is likely to confirm that the world’s second-largest economy shrank sharply in the second quarter amid a coronavirus lockdown. Brent was down $1.27 at $105.76, while U.S. crude was down $1.43 at $103.36 a barrel. Sign up now for FREE unlimited access to Reuters.com Register Reporting by Wayne Cole and Lawrence White. Editing by Kenneth Maxwell, Bradley Perrett and Kirsten Donovan Our Standards: The Thomson Reuters Trust Principles.