Global stocks decline as central bank rate hikes loom

  • Crude oil prices are falling
  • The dollar was little changed
  • US CPI Tuesday, Fed meeting Wednesday
  • ECB, BOE interest rate decisions on Thursday

LONDON, Dec 12 (Reuters) – Global shares fell on Monday as investors braced for the last round of transatlantic rate hikes this year from a trio of central banks, on hopes that a so-far steep rise in borrowing costs will finally show signs of easing.

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

The dollar rose against the Japanese yen but eased against a basket of currencies after data on Friday showed US producer prices had risen more than expected last month, pointing to persistent inflationary pressures, ahead of the key US consumer price index for November on Tuesday, as a decline in annual core inflation is expected.

“A major event risk calendar this week will define the core themes for 2023,” ING Bank said.

Market consensus still “underestimated” the risk of inflation remaining higher for longer and “dangerously second-guessing” the Fed on rate cuts in the second half of next year, ING said.

The MSCI all country share index (.MIWD00000PUS) was down 0.3%, and the benchmark has lost about 18% so far this year, wiping out any gains in 2021.

In Europe, the STOXX index (.STOXX) of 600 companies was down 0.7%.

Economists expect the Federal Reserve on Wednesday, and the European Central Bank and the Bank of England on Thursday, to all raise interest rates by 50 basis points, still down from the 75 basis point increases seen in recent meetings.

Patrick Spencer, deputy head of equities at Baird investment bank, 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 kind of catalysts. If the CPI is a subdued number, we’re off to the races and we’ll have our year-end rally,” Spencer said.

But regardless of the CPI, deflationary pressures are increasing, with crude oil prices down for the year, and iron ore, lumber and housing prices also down, Spencer said.

“All this talk about recession, I think it’s certainly in the price, it’s in the markets. The key about recession is generally employment, and I think employment is going to be stronger than people give it credit for,” 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 shares outside Japan (.MIAPJ0000PUS) fell 1.2%, erasing nearly all of last week’s gains stemming from optimism that China is finally opening up its economy with the winding down of its zero-Covid-19 policy.

Japan’s Nikkei (.N225) fell 0.2%.

Chinese bluechips (.CSI300) fell 1.1%, while Hong Kong’s Hang Seng Index (.HSI) fell 2.2%, as investors’ focus shifted away from crippling COVID-19 mitigation to the surge in infections now disrupting the economy .

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

“We also want to understand if Jay Powell opens the door to a decline to a 25bp hike pace from February – again, while in line with market pricing, this suggests we are closer to the end of the hike cycle and is a modest USD negative,” Chris Weston said , head of research at Pepperstone.

Kevin Cummins, chief U.S. economist at NatWest, said any surprise November CPI report was unlikely to move the Fed away from a 50 basis point rate hike, although it would play a larger role in the policy statement and the tone of Powell’s press. conference.

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

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

Government bonds remained largely stable on Monday. The benchmark 10-year Treasury yield fell to 3.5433%, compared with a US close of 3.5670%. The two-year yield reached 4.3294%, slightly down from the US industry’s 4.330%.

Brent crude futures were down 0.4% at $75.77 a barrel, while US West Texas Intermediate crude was at $70.84 a barrel, down 0.3%.

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: Thomson Reuters Trust Principles.

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