Global equities slack as central bank rate hikes loom

  • Crude oil prices are relaxing
  • dollars little changed
  • US CPI on Tuesday, Fed meeting on Wednesday
  • ECB and BOE interest rate decisions on Thursday

LONDON, Dec 12 (Reuters) – Global stocks fell on Monday as investors braced for the latest round of transatlantic interest rate hikes this year by a trio of central banks on hopes that a hitherto vigorous pace of borrowing cost increases finally showing signs of easing.

Oil prices rose as a key pipeline supplying the United States remained closed, while Russian President Vladimir Putin threatened to cut production in retaliation for a Western price cap on his exports.

The dollar rose against the Japanese yen but fell against a basket of currencies after data on Friday showed US producer prices rose more-than-expected last month, signaling continued inflationary pressures ahead of the key US CPI for November on Tuesday, as a slowdown in annual core inflation is expected.

“A strong event risk calendar this week will define key themes for 2023,” ING Bank said.

The market consensus is still “underestimating” the risk of prolonged inflation and “dangerously doubts” the Fed about rate cuts in the second half of next year, ING said.

The MSCI All Country Stock Index (.MIWD00000PUS) is down 0.3%, the benchmark is down about 18% so far this year, erasing all gains from 2021.

In Europe, the STOXX index (.STOXX) with 600 companies fell by 0.7%.

Economists expect the Federal Reserve on Wednesday and the European Central Bank and Bank of England on Thursday to all hike rates by 50 basis points, still a slowdown from the 75 basis point hikes seen in recent meetings.

Patrick Spencer, vice chairman for equities at investment bank Baird, said central banks will start to take a less aggressive stance this week, although Tuesday’s CPI data will be critical.

“It’s the last important week of the year, after this week you don’t have any real catalysts. If the CPI is a subdued number, we’ll go to the races and we’ll get our year-end rally,” said Spencer.

But regardless of the CPI, deflationary pressures are mounting as crude oil prices are down for the year and iron ore, lumber and home prices are also down, Spencer said.

“All this talk about recession, I think it’s certainly because of the price, it’s because of the markets. The key to the recession in general is employment, and I think employment is going to be stronger than people realize,” Spencer said.

Both S&P 500 futures and Nasdaq futures were little changed.

ASIAN SHARES FALL

In Asia, MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) tumbled 1.2%, erasing nearly all of the previous week’s gains on optimism that China’s economy was holding up finally opening up to dismantling its zero-COVID policy.

Japan’s Nikkei (.N225) fell 0.2%.

Chinese blue chips (.CSI300) fell 1.1%, while Hong Kong’s Hang Seng Index (.HSI) fell 2.2% as investor focus shifted from crippling COVID-19 containment to the surge in infections , which is now disrupting the economy.

While the Fed is widely expected to hike rates by 50 basis points at its last meeting of 2022 on Wednesday, focus will also be on the central bank’s updated economic forecasts and Fed Chair Jerome Powell’s press briefing.

“We also want to understand if Jay Powell is opening the door to a slowdown to a 25bp pace of gains from February – while consistent with market prices, it could be assumed that we are and are closer to the end of the raising cycle a slightly negative USD,” said Chris Weston, head of research at Pepperstone.

Kevin Cummins, chief US economist at NatWest, said that any surprise in the November CPI report is unlikely to dissuade the Fed from raising rates by 50 basis points, although it would play a bigger role in the policy statement and the tone of Powell’s press conference .

In FX markets, the US dollar fell 0.143% to 104.89, although not too far off a five-month low of 104.1 a week ago.

Sterling was unchanged at $1.2259, while the Australian dollar also slipped 0.3% to $0.6745.

Treasury yields were broadly flat on Monday. The yield on the 10-year benchmark Treasury Notes fell to 3.5433% compared to its US close of 3.5670%. The two-year yield hit 4.3294%, slightly below its US close of 4.330%.

Brent crude futures fell 0.4% to $75.77 a barrel, while US West Texas Intermediate crude fell 0.3% to $70.84 a barrel.

Spot Gold was 0.4% lower at $1,790 an ounce.

Reporting by Huw Jones, editing by Bradley Perrett, Sam Holmes and David Evans

Our standards: The Thomson Reuters Trust Principles.

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