Global stocks ease after Fed officials dampen confidence

LONDON, Jan 10 (Reuters) – Global stocks edged lower on Tuesday as comments from two Federal Reserve officials weighed on the U.S. interest rate outlook, hitting stocks, commodities and other risks as investors took gains over the past two weeks. assets.

MSCI All-World Index (.MIWD00000PUS) It shed 0.1% but was on track for a three-week high on Monday, while the dollar – a measure of investors’ risk appetite – was steady against a basket of major currencies.

In the past six weeks, as cases have surged across the country, China has scrapped its zero-Covid policy, giving markets a level playing field as investors weigh the economic benefits of reopening against the impact of activity from the wave. Infections.

In addition, inflation has peaked, particularly in the US, and there is hope that the central bank will not have to raise rates as many feared.

However, with consumer price pressures still above the central bank’s target of 2%, two central bank officials issued a stark reminder on Monday that interest rates must continue to rise regardless of what investors are pricing in.

“The market is trying to get one step ahead of the Fed, but it’s not really listening to it. And the Fed has been very clear with its message – rates are going to be higher, and they’re going to be higher. For a long time,” said CitiIndex strategist Fiona Cincotta.

“If you look at inflation expectations later this week — the big focus — core inflation is expected to be higher. It doesn’t matter which way you look at it. It’s still above the Fed’s target,” she said.

Consumer price data due on Thursday showed headline inflation expected to ease to 6.5% in December from 7.1% in November.

The data is important in setting expectations for what happens with rates at the Fed’s next policy meeting and beyond.

San Francisco Fed President Mary Daly told the Wall Street Journal that she was focused on Thursday’s data and that 25- and 50-basis-point hikes were options for her. Atlanta Fed President Rafael Bostic said his “fundamental case” is not for rate cuts this year or next.

“The key theme overnight was caution in the equity space as stocks gained after dovish comments from two Fed officials. Rafael Bostick and Mary Daly said the central bank could raise (interest) rates above 5% and keep them there for some time,” Commerzbank said in a note. .

Federal Reserve Chairman Jerome Powell addresses a conference on central bank independence later Tuesday, and investors will be looking to his comments for any signal on monetary policy.

Fragile China

In Europe, stocks opened in the red, with the STOXX 600 (.STOXX), fell 0.7% in eight months on Monday and hit its peak. London’s FTSE 100 (.FTSE) lost 0.3%, while Frankfurt’s DAX (.GDAXI) fell 0.5%.

U.S. stock index futures eased 0.1%, indicating Wall Street may open a touch higher.

The dollar was carved up against the Australian dollar, which is more sensitive to the Chinese economy and has gained 3.5% in the past three weeks alone, on hopes of a reopening.

The Aussie was last down 0.2% at $0.6903, while the offshore yuan lost 0.1% against the dollar to trade around 6.7906. The day before hit its strongest level since mid-August.

The dollar index fell 0.21%. The euro was up 0.1%, the pound was down 0.1%. The yen rose 0.1% to 132.04 against the dollar after data showed a sharp rise in Tokyo inflation, prompting the Bank of Japan to tighten monetary policy faster.

Strategists at BlackRock, the world’s largest asset manager, said on Tuesday they expected China’s economy to grow 6% this year, easing the global slowdown as recession hits developed market economies. But any bounce can be fleeting.

“Even if domestic activity restarts, we do not expect the level of economic activity in China to return to its pre-Covid trend. We see growth slowing once the restart runs its course,” said Wei Li, global chief investment strategist. for investment firm BlackRock, wrote in a note.

Copper eased from a six-month high as China’s recovery from COVID-19 was offset by concerns about the risks of a broader global downturn.

London Metal Exchange copper futures fell 0.9% to $8,785 a tonne, a six-month high on Monday, while aluminum and zinc fell between 1-1.4%.

Oil was under pressure on concerns that China’s resumption of more normal activity would not lead to a pick-up in demand.

“The social vitality of major Chinese cities is recovering rapidly, and China’s demand is expected to resume. However, as consumption recovery is still in the expected phase, oil prices remain low and range-bound,” analysts at Haidong Futures said.

Brent crude was down 0.6% at $79.16 a barrel. Oil prices are 2.3% lower than a year ago and 45% higher at $139 after Russia invaded Ukraine last February.

Additional reporting by Selena Li in Hong Kong; Editing by Muralikumar Anantharaman and Angus MacSwan

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