SYDNEY/LONDON, Jan 30 (Reuters) – Stocks slid on Monday at the start of an agenda-setting week for markets, with likely rate hikes in Europe and the United States and US jobs and wages data giving markets a chance will New update on the fight against inflation.
Investors are expecting the Federal Reserve to hike rates by 25 basis points on Wednesday, followed by a half-point hike by the Bank of England and the European Central Bank the following day, and any deviation from that script would come as a real shock.
Tech giants’ gains will also test Wall Street bulls, who want to push the Nasdaq to its best January since 2001.
Europe’s benchmark index, the STOXX, fell 0.5% on Monday morning, reflecting a modest decline in MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS)which rose 11% in January as China’s reopening strengthens its economy.
Meanwhile, US stocks should follow Monday’s jittery mood, with S&P 500 futures and Nasdaq futures falling nearly 1% 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. Continue reading
“With US job markets still tight, core inflation elevated and financial conditions easing, Fed Chair Powell’s tone will be hawkish, emphasizing that a downgrade to a 25 basis point hike doesn’t mean a pause is coming said Bruce Kasman, chief economist at JPMorgan, who expects another surge in March.
“We also expect him to continue cracking down on market pricing for rate cuts later this year.”
There is work to be done as futures currently expect rates to peak at 5% in March, only to fall back to 4.5% by the end of the year.
The dollar index was flat ahead of the data and was on course for a fourth straight monthly loss of more than 1.5% as expectations mounted that the Fed was nearing the end of its rate-hiking cycle.
APPLE CORE
Yields on 10-year notes are down 33 basis points to 3.50% so far this month, largely due to easing financial conditions, although the Fed is tough on tightening.
This dovish outlook will also be tested by data on US payrolls, the employment cost index and various ISM surveys.
Reading EU inflation could be important in determining whether the ECB signals a half-point hike in March or opens the door for a slowdown in the pace of tightening. Continue reading
As for Wall Street’s recent rally, much will depend on Apple Inc.’s earnings (AAPL.O)Amazon.com (AMZN.O)alphabet inc (GOOGL.O) and metaplatforms (META.O)among many others.
“Apple will provide an insight into the overall demand history for consumers worldwide and provide a snapshot of China supply chain issues that are beginning to ease,” analysts at Wedbush wrote.
“Based on our recent supply chain reviews in Asia, we believe demand for the iPhone 14 Pro is stronger than expected,” they added. “Apple will likely cut some costs on the fringes, but we don’t expect any mass layoffs.”
The market’s view of early Fed easing weighed on the dollar, which is down 1.6% so far this month and stands at 101,790 against a basket of major currencies.
The euro is up 1.5% in January to $1.0878, just below a nine-month high. The dollar was even down 1.3% against the yen to 129.27 despite a staunch defense of the Bank of Japan’s ultra-loose policy.
The fall in the dollar and yields has been a boon for gold, which is up 5.8% month to date to $1,930 an ounce.
The precious metal was flat Monday ahead of a string of key central bank moves and data releases.
China’s quick reopening is seen as a boon for commodities in general, supporting everything from copper to iron ore to oil prices.
The oil market hesitated amid fears that the Fed’s likely rate hikes could stifle fuel demand, with Brent falling nearly 1% to $85.88 a barrel while US crude slipped 87 cents to $78.8.
Reporting by Wayne Cole and Lawrence White; Edited by Christopher Cushing and Arun Koyyur
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