Global markets: Rate hike worries cheer China again as stocks set for weekly losses
TOKYO/LONDON: Global stocks were set for their first weekly loss of the year as a rally fueled by hopes of China boosting the global economic recovery was fueled by central bankers who vowed to persevere with rate hikes. , according to Reuters.
The MSCI World Price Index was up 0.3 percent in early London trading on Friday, boosted by gains in Asia, after Chinese officials said on Thursday the number of COVID-19 patients requiring critical care in hospitals peaked.
The all-country equity gauge was also on course to post a loss of about 1.4 per cent for the week, though it edged up about 4 per cent this month after an optimistic start to 2023.
Some analysts say equities were showing too much optimism about the economic recovery, as both the US Federal Reserve and the European Central Bank are determined to tighten monetary policy to fight inflation.
The Stoxx Europe 600 stock index, which rose 0.1 percent on Friday, pared nearly half of its 12.9 percent 2022 losses during the first three weeks of January. The surge was driven by China’s reopening of trade and lower natural gas prices.
“The market is not ready for a wave of pain to come from tightening positions,” said Andreas Bruckner, European equity strategist at Bank of America.
ECB President Christine Lagarde said at the World Economic Forum’s Davos gathering on Thursday that the bank would stay the course with an interest rate hike.
The US Fed also looks set to maintain its tightening campaign, even though retail sales, producer prices and output at US factories fell more than expected in December in a report on Wednesday. On Thursday, US weekly jobless claims were lower than expected, pointing to a tight labor market and sending Wall Street’s S&P 500 stock gauge 0.8 percent lower.
Boston Fed President Susan Collins said the central bank would probably need to raise rates “well above” 5 percent, then hold them there, while Fed Vice Chairman Lael Brainard said the recent moderation in inflation would Regardless, it remains high and “policy will be needed to impose substantial restrictions for some time.”
Tony Sycamore, an analyst at IG, said the comments by “generally reliable Fed dove” Brainard in particular “compounding rate hike fears.”
“The labor market is too hot to back off,” said Sycamore.
The market expects the Fed’s benchmark interest rate to fall below 5 percent in June, meaning only 50 basis points of additional tightening.
On Friday morning, S&P futures ticked 0.3 percent higher.
The dollar index – which measures the US currency against six peers including the euro and yen – rose 0.14 to 102.17, reaching a little over Wednesday’s 7-1/2-month low of 101.51.
The benchmark 10-year Treasury yield was about 3.4 percent after jumping overnight to 3.321 percent, the lowest since mid-September.
In Asia, Japanese government bond yields declined.
The 10-year JGB yield fell half a basis point to 0.4 percent on Wednesday, after knocking it above the Bank of Japan’s 0.5 percent policy ceiling, as the central bank refrained from making further changes to its yield curve controls.
The yen, which has been volatile as traders debate when the BOJ might eventually abandon its controversial policy of buying large amounts of JGBs to suppress borrowing costs, weakened 0.5 percent to 128.9 per dollar.
Elsewhere, crude oil prices continued to rally. Brent futures for March delivery rose 30 cents, or 0.35 percent, to $86.46 a barrel, while US crude rose 49 cents to $80.82 a barrel, up 0.6 percent.