© Reuters. File photo: A monitor displaying stock index prices and the exchange rate of the Japanese yen against the US dollar at the Tokyo Stock Exchange in Tokyo, Japan, January 4, 2022. REUTERS/Issei Kato/File Photo
Amanda Cooper
LONDON (Reuters) – Global stocks rose on Monday but skimmed a six-week low after another data round last week forced investors to prepare for higher interest rates in the US and Europe. week.
US manufacturing and services data and Eurozone inflation figures will help shape investor expectations for the March central bank meeting.
Also in this week’s Speaking Diary are at least six Federal Reserve policymakers, providing ongoing commentary on possible further rate hikes.
Manufacturing surveys are underway in China, and the National People’s Congress is set to open at the weekend with new economic policy goals and policies and a realignment of government officials.
The MSCI All-World Index of global equities rose 0.1% on Monday, posting its biggest weekly drop since late September last week and dropping 2.6% thanks to a blistering rise in the dollar.
The index is headed for a 3% decline in February after gaining in January, after many major stock indices posted their best performances in the first month of the year.
January’s euphoria was based on hopes that the major economies would avoid a recession this year, but has moved closer to realism about the interest rate outlook. I expected it in advance.
“We just got a bunch of very strong macro data and I think it brought this reality check to the markets. The markets are completely ignoring it and they’re really on the same page as the Fed. Good thing said Fiona Cincotta, market strategist at CitiIndex.
Fed futures are now peaking around 5.42%, implying at least three more rate hikes from the current 4.50% to 4.75% range, with a 50bps chance in March. I have.
When the Fed ended its last policy meeting in early February, the market showed traders expecting a peak interest rate of 4.73%, ahead of January’s employment and business activity data. . We lowered the price.
The two-year US Treasury yield, which is most sensitive to changes in interest rate expectations, rose nearly 80 bps during that time, but is down 6% from its five-month high on February 2nd.
stocks recoup some losses
European stocks rallied on Monday, thanks to gains across normally rate-sensitive sectors such as oil and gas and technology, which fell 1.4% and 3.8% respectively last week.
fell 1.4% last week but rose 1%. Nasdaq futures were up 0.2%, but were up 0.1%.
The US isn’t the only country where investors believe the central bank needs to keep raising interest rates to keep inflation down. Short-term money markets show that traders believe the European Central Bank and the Bank of England should raise interest rates to higher peaks and hold them there longer.
“Given that the Fed has announced that rates will continue to rise for a long time, and that’s reflected in the market, it feels a little more realistic,” said Cincotta of City Index.
Bruce Kassman, head of economic research at JP Morgan (NYSE:), added another quarter-point hike to the ECB’s outlook, raising it to 100 basis points. Germany’s two-year bond yield climbed above his 3.0% on Friday for the first time since 2008.
“Risks are clearly biased toward the Fed’s larger actions,” says Kassman.
“Demand has proven resilient in the face of tightening, and the lingering damage to supply from the pandemic is limiting the easing of inflation,” he added. “The contagion of rapid policy change, which is still underway, also increases the risk of a recession unintended by central banks.”
The dollar is the main beneficiary of changes in expectations for Federal Reserve (Fed) interest rates.
It is up 3% against a basket of major currencies this month, marking its best monthly performance since September’s 20-year high.
The pound rose 0.3% to $1.1945 and the yen rose 0.1% to trade at 136.35 and ended the day flat around 105.12 after hitting a nine-week low last week. Dovish comments from top BOJ policymakers.
Crude oil erased previous losses, rebounding from a weaker dollar and Russia’s plans to cut supply.
It rose 0.5% to $83.59 a barrel while US futures rose 0.6% to $76.77.