S Global stocks fell and dollar and US Treasury yields rose on Tuesday, after statements from European monetary authorities that contributed Markets will reduce bets on interest rate cuts for March.
Investors are also digesting several political and geopolitical developments, such as Donald Trump’s resounding victory in America’s first presidential race in Iowa on Monday and tensions in the Red Sea, Gaza and Ukraine.
Both the STOXX 600 index and MSCI’s measure of Asia-Pacific stocks excluding Japan hit their lowest levels since mid-December. The pan-European benchmark fell about 0.5%, moving away from a two-year high reached earlier in the month.
S&P 500 futures fell 0.5%, suggesting Wall Street’s benchmark index will not immediately renew its bid for a new all-time high. On Friday it was 0.3% below the intraday high reached in early 2022. U.S. markets remained closed on Monday for the Martin Luther King Jr. holiday.
Stock gains were supported by a sharp decline in bond yields in November and December, as investors brought forward expectations of rate cuts from central banks. That trend has since reversed slightly, with the benchmark 10-year bond yield gaining 5 basis points on Tuesday, just above 4%.
Market prices now reflect a roughly 70% chance that the Federal Reserve will cut rates in March, up from 80% a week ago, and that the European Central Bank’s first rate cut will begin in April, although traders expected it to happen in March.
Contributing to these revisions were statements from ECB officials this week, with hardline speakers such as Bundesbank President Joachim Nagel firmly rejecting expectations of rate cuts. French central bank governor Francois Villeroy de Galhau said Tuesday that the ECB’s next move will be a rate cut, but the timing is unknown.
“A rate cut is likely, but not as soon as markets are predicting,” said Guy Miller of Zurich Insurance Group. “Our view is that inflation will fall towards its targets throughout the year, but intermittently.”
We will also carefully follow the speech that Fed Governor Christopher Waller will give at 16.00 GMT on the economic outlook. Investors are also keeping an eye on fourth-quarter company results.
Plus, there’s plenty of news from around the world to keep track of, such as Yemen’s Houthi movement’s threat to expand its targets in the Red Sea region to include US vessels.
In the commodity sector, oil gained more than 0.75%, supported by the instability of the shipping route. Gold fell to $2,041 an ounce.
Sterling was one of the session’s worst-performing currencies, falling 0.66% to $1.2643, after data showed a slowdown in British wages growth in the three months to November, supporting the idea that the Bank of England will cut rates this year.
That, along with rising bond yields, helped the dollar index gain 0.52% to its highest level in a month.
2024-01-16 13:49:00
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