- Global stocks are up, but Wall Street is down
- The link to the dollar is weakening
- Yen has taken a break from its recent rally
LONDON/NEW YORK (Reuters) – The dollar jumped on Tuesday as oil prices fell, while U.S. stocks bucked a rally in global stocks in a week full of macroeconomics that could provide guidance on when and where U.S. interest rates may peak.
MSCI All-World Index (.MIWD00000PUS) It fell 0.2 percent, affected by losses in US stocks. Dow Jones Industrial Average (.DJI) A little changed, the Standard & Poor’s 500 ended up (.SPX) It fell 0.4% and the Nasdaq Composite Index (nineteenth) lost 0.76%.
Losses in US stocks led a 12.2% drop in electric car maker Tesla (TSLA.O) After it missed Wall Street’s estimates for quarterly delivery. iPhone maker Apple Inc (AAPL.O) It fell 3.7% to its lowest since June 2021 after a downgrade due to production cuts in China.
The US dollar strengthened ahead of the release of the minutes of the latest Federal Reserve meeting on Wednesday, on expectations that they will indicate that further policy tightening is in store.
The decline was caused by higher dollar oil prices, which also took a hit from concerns about slowing global economic growth, especially after data showed factory activity contracted in China in December.
“We expect the December FOMC meeting minutes to shed more light on Fed officials’ views for 2023,” analysts at TD Securities said in a note. Note that at the meeting, the committee noted broad expectations for a significantly higher interest rate this year. general”.
The dollar index jumped 0.94%, to 104.64.
The euro was the worst performer against the dollar, falling by the most since late September, after German regional inflation data showed that consumer price pressures eased sharply in December, thanks in large part to government measures to contain natural gas bills for households and businesses. . .
Data on US payrolls this week is expected to show that the labor market remains tight, while consumer prices in the European Union may show some slowdown in inflation as energy prices fall.
“Energy base effects will significantly reduce inflation in major economies in 2023, but stability in the underlying components, much of this stemming from tight labor markets, will prevent early pessimism by central banks,” NatWest Markets wrote in a note.
They expect interest rates to reach 5% in the US, 2.25% in the EU and 4.5% in Britain and to stay there throughout the year. On the other hand, markets are pricing in rate cuts in late 2023, with Fed funds futures pointing to a range of 4.25% to 4.5% by December.
“The thing that makes me nervous this year is that we still don’t know the full impact of the very significant monetary tightening that’s happened across the developed world,” said Callum Pickering, chief economist at Berenberg.
“It takes a good year, or 18 months, for the full effect to kick in,” he said.
Central banks have expressed concern about rising wages, even as consumers struggle to keep up with the rising cost of living and companies are running out of space to protect their profitability by raising their prices.
However, Pickering said, the job market tends to delay the broader economy for some time, which means there is a risk that central banks could raise interest rates more than the economy can handle.
“What central banks are stimulating is basically an increase in cyclicality, which is — they overstimulated in 2021 and triggered an inflationary boom and then tightened in 2022 and triggered a counter-inflationary slump. It’s exactly the opposite of what central banks want you to do,” he said. .
European stock rally
In the markets, European stocks rose thanks to gains in traditionally defensive sectors, such as healthcare and food and beverages. Pharmaceutical makers Novo Nordisk (NOVOb.CO)AstraZeneca (AZN.L) and Roach (ROG.S) She was among the largest positive weights on the STOXX 600 (.STOXX)along with Nestlé (NESN.S)
The Stoxx index, which lost 13 percent in 2022, rose 1.2 percent. FTSE 100 index (.FTSE)The only major European index not trading on Monday rose 1.4%.
Markets for a while priced in eventual US easing but were sorely wrong by the Bank of Japan’s sudden upward shift in its yield ceiling.
The Bank of Japan is now considering raising inflation forecasts in January to show price growth close to its 2% target in fiscal 2023 and 2024, according to the Nikkei.
Such a move at its next policy meeting on January 17-18 will only add to speculation of an end to a very loose policy, which has essentially served as a floor for bond yields globally.
The policy shift boosted the yen across the board, with the dollar losing 5% in December and the euro 2.3%.
The yen took a breather on Tuesday, slipping 0.3% against the dollar to 130.895. The dollar earlier touched a six-month low of 129.52 yen.
Oil succumbed to dollar strength, and the downward momentum added to concerns about demand in China, the world’s second largest economy.
A slew of surveys showed that Chinese factory activity contracted at the sharpest pace in nearly three years as coronavirus infections swept production lines.
“China is entering the most dangerous weeks of the epidemic,” warned analysts at Capital Economics.
Brent crude lost 4.2 percent to settle at $82.10 a barrel.
Reporting by Koh Gui Ching in New York and Amanda Cooper in London Additional reporting by Wayne Cole in Sydney Editing by Andrea Ricci and Matthew Lewis
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