SYDNEY/LONDON, Jan 30 (Reuters) – Shares fell on Monday at the start of an agenda-setting week for markets, with likely interest rate hikes in Europe and the United States, as well as U.S. jobs and wages data weighing on markets. a new update on fighting inflation.
Investors expect the Federal Reserve to raise interest rates by 25 basis points on Wednesday, followed by half-point hikes by the Bank of England and the European Central Bank the next day, and any deviation from this scenario would be a real shock.
The gains by the tech giants will also test the mettle of Wall Street bulls, who are looking to push the Nasdaq to its best level since January 2001.
Europe’s benchmark STOXX index fell 0.5% on Monday morning, mirroring a slight decline in MSCI’s broadest index of Asia-Pacific shares outside Japan. (.MIAPJ0000PUS)It rose 11% in January as China’s reopening boosted its economy.
Meanwhile, US stocks were poised to follow a jittery Monday sentiment, with S&P 500 futures and Nasdaq futures down about 1% on Monday, as investors await guidance on Federal Reserve policy later in the week.
Analysts expect a hawkish tone, suggesting more needs to be done to tame inflation. read more
“With US labor markets still tight, core inflation rising and financial conditions easing, Fed Chair Powell will be hawkish, stressing that a 25-barrel rate cut does not mean a pause is imminent,” said Bruce Kasman, chief economist at JPMorgan. , who expects another rise in March.
“We also expect it to continue to push back against market prices of interest rate cuts later this year.”
Given that futures currently expect rates to hit 5% in March, before falling to 4.5% by the end of the year, there is plenty of leverage.
The dollar index was flat earlier in the day with a fourth straight monthly loss of more than 1.5% on growing expectations that the Fed is nearing the end of its rate hike cycle.
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The yield on the 10-year note has fallen 33 basis points to 3.50% so far this month, as financial conditions eased even as the Fed talked tough about tightening.
This dovish outlook will also be tested by US payrolls, employment cost index and various ISM surveys.
A reading on EU inflation could be important for whether the ECB hints at a half-point rate hike for March or opens the door to a slowdown in the pace of tightening. read more
As for Wall Street’s latest rally, much will depend on Apple Inc’s earnings (AAPL.O)Amazon.com (AMZN.O)Alphabet Inc (GOOGL.O) and Meta Platforms (GOL.O)among many others.
Analysts at Wedbush wrote: “Apple will look at the overall demand story for consumers globally and the picture of Chinese supply chain problems that are slowly starting to subside.”
“Based on our recent Asian supply chain audits, we believe iPhone 14 Pro demand is holding up stronger than expected.” “Apple will likely cut some costs, but we don’t expect massive cuts.”
Markets of early Fed easing weighed on the dollar, which has lost 1.6% so far this month to 101,790 against a basket of major currencies.
The euro rose 1.5% to $1.0878 for January, just shy of a nine-month peak. Despite the Bank of Japan’s stubborn defense of ultra-easy policies, the dollar even lost 1.3% to 129.27 against the yen.
The weaker dollar and lower yields have been a boon for gold, which is up 5.8% for the month to $1,930 an ounce.
The precious metal was flat on Monday ahead of key central bank moves and data releases.
China’s rapid reopening is widely seen as a windfall for commodities, supporting everything from copper to iron ore to oil prices.
The oil market was reeling amid concerns that a possible Fed rate hike would stifle demand for the fuel, with Brent crude down nearly 1% to $85.88 a barrel, while US crude fell 87 cents to $78.8.
Reporting by Wayne Cole and Lawrence White; Edited by Christopher Cushing and Arun Koyur
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