LONDON, Jan 30 (Reuters) – Global stock markets halted their January rally on Monday, stifled at the start of an agenda-setting week of central bank rate hikes and data releases that will make clear whether progress has been made in the war against the virus. Inflation
Investors expect the Federal Reserve to raise rates by 25 basis points on Wednesday, following half-point hikes from the Bank of England and the European Central Bank the following day, and any deviation from that script would be a real shock.
Europe’s benchmark STOXX index fell 0.8% on Monday morning, echoing a slight decline in MSCI’s broadest index of Asia-Pacific shares outside Japan. (.MIAPJ0000PUS)That’s up 11% year-to-date in January as China’s reopening bolsters sentiment.
The US Nasdaq index is on pace for its best January since 2001, a rally that will be tested by the tech giants’ earnings updates this week.
US stocks were set to follow nervous Monday mood with S&P 500 futures down 1% and Nasdaq futures down 1.3%, as investors awaited guidance from the Federal Reserve later in the week on policy.
Analysts expect more to be done to control inflation, a bleak word. Read more
“With the US labor market still tight, core inflation rising and financial conditions easing, Fed Chair Powell’s tone will be upbeat, stressing that a 25bp cut in growth does not mean a break is coming,” said Bruce Kassman, chief economist at JPMorgan. JPMorgan’s chief economist, who expects another hike in March.
“We’re also looking for him to push back against market pricing for a rate cut later this year.”
A lot of pressure is on given futures with rates currently peaking at 5% in March and expected to return to 4.5% by the end of the year.
Europe offered a quick reminder that the fight against rising prices is far from over, as bond yields in the region rose sharply on Monday in the wake of better-than-expected Spanish inflation data.
Inflation rose 5.8% annually in January, against expectations of 4.7%, pushing the yield on the zone’s benchmark German 10-year government bond up 7 basis points (bps) to 2.3190%, the highest since Jan. 10.
Italian and Spanish yields also increased.
The dollar index was flat ahead of the week’s key data, certainly rising more than 1.5% on expectations that the Fed is nearing the end of its rate-hike cycle for a fourth straight monthly loss.
Apple core
The yield on the 10-year note has fallen 33 basis points to 3.50% so far this month, largely due to easing monetary conditions even as the Fed talks tougher about tightening.
That dual view will also be tested by data from US payrolls, the employment cost index and various ISM surveys.
Readings on EU inflation could be important if the ECB signals a half-point rate hike for March, or opens the door to a recession on the pace of tightening. Read more
As for Wall Street’s recent rally, much will depend on earnings from Apple Inc (AAPL.O)Amazon.com (AMZN.O)Alphabet Inc. (GOOGL.O) and meta platforms (META.O)among many others
“Apple will provide a glimpse into the overall demand story for global consumers and a snapshot of China’s supply chain woes beginning to gradually subside,” Wedbush analysts wrote.
“Based on our recent Asia supply chain checks we believe iPhone 14 Pro demand is stronger than expected,” they added. “Apple will probably cut some costs around the edges, but we don’t expect massive layoffs.”
The market price of early Fed easing has been a burden for the dollar, which has lost 1.6% so far this month to 101.85 against a basket of major currencies.
The euro rose 1.5% in January to $1.0878 and is at a nine-month high. The dollar even lost 1.3% against the yen to 129.27 despite the Bank of Japan’s firm defense of its ultra-easy policy.
A weaker dollar and yields have been a boon for gold, which is up 5.8% on the month so far at $1,930 an ounce.
The precious metal was flat on Monday ahead of several key central bank moves and data releases.
China’s rapid reopening is seen as a boon for commodities in general, supporting everything from copper to iron ore to oil prices.
Oil prices were steady on Monday after earlier losses as tensions in the Middle East increased due to drone attacks on Iran and expectations of higher Chinese demand.
Brent crude rose 10 cents, or 0.12%, to $86.76 a barrel by 1200 GMT while U.S. West Texas Intermediate crude added 4 cents, or 0.05%, to $79.72.
Reporting by Lawrence White and Wayne Cole; Editing by Christopher Cushing, Arun Coeur and Christina Fincher
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