Stocks edge up as Warsh says inflation expectations fall; oil slips

By Rodrigo Campos and Danilo Masoni

NEW YORK/MILAN, July 1 (Reuters) - A gauge of stock markets around the world edged up on Wednesday as the U.S. central bank head said inflation expectations have fallen, while crude oil prices were down as optimism over U.S.-Iran talks eased supply concerns.

Traders also watched for possible Japanese intervention in the currency market after the yen touched fresh 40-year lows against the dollar.

Speaking on a panel of central bankers in Sintra, Portugal, Federal Reserve chair Kevin Warsh said inflation expectations and inflation risks have come down in recent weeks. He said his fellow U.S. policymakers will decide whether to raise interest rates when they begin their next meeting, keeping to his word on not giving forward guidance.

His comments weighed on the dollar, which has been underpinned by rising expectations of Fed rate hikes this year, as inflation runs well above the central bank's 2% annual target. Still, many analysts believe the inflation picture will improve in the months ahead.

“Nothing that we see suggests that any imbalance either on the activity side or the inflation side is growing rapidly,” said Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered Bank’s New York branch.

“You can afford to wait and see how these longer-term technological trends play out,” Englander added. “What we do see is that unit labor costs are very, very soft, and ultimately that's what the Fed controls.”

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.13% to 101.36, with the euro down 0.35% at $1.1381. Against the Japanese yen, the dollar last weakened 0.07% to 162.43.

Futures imply no move from the Fed in its meeting late this month, while a hike in September is priced in.

In late morning trading on Wednesday in New York, the Dow Jones Industrial Average rose 239.04 points, or 0.46%, to 52,558.24, the S&P 500 rose 15.04 points, or 0.20%, to 7,514.40 and the Nasdaq Composite fell 34.22 points, or 0.13%, to 26,179.50. 

MSCI's gauge of stocks across the globe rose 0.61 point, or 0.05%, to 1,121.07, and the pan-European STOXX 600 index fell 0.31%, while Europe's broad FTSEurofirst 300 index fell 10.51 points, or 0.41%. Emerging market stocks rose 0.82 point, or 0.05%, to 1,723.71.

In Asia, Japan's Nikkei gained 0.6% after surging 37% last quarter, with strong tech demand lifting sentiment among big manufacturers to an eight-year high. South Korea's main index fell about 2%, following a 68% rally last quarter driven by AI-fuelled chip demand.

In energy markets, oil prices fell as optimism over U.S.-Iran talks eased supply concerns.

"The negotiations that are currently taking place in Qatar are perceived as being positive (and) that has allowed prices to drift further," Saxo Bank analyst Ole Hansen said. "There is a chance that we could see even lower prices."

U.S. crude fell 1.74% to $68.29 a barrel and Brent fell to $71.35 per barrel, down 2.19% on the day. Despite sharp price declines last quarter, both are up nearly 20% year-to-date.

Spot gold jumped nearly 2% after posting on Tuesday its largest quarterly drop since 2013. 

(Reporting by Rodrigo Campos in New York, Danilo Masoni in Milan and Wayne Cole in Sydney, Additional reporting by Seher Dareen, Anushree Mukherjee, Karen Brettell, Chuck Mikolajczak and Dhara Ranasinghe; Editing by Hugh Lawson and Matthew Lewis)