Global stock markets slow as interest rate cut hopes decline
Global stock markets continued their decline in the new year on Wednesday, while the dollar remained strong, with market optimism receding regarding early cuts in US interest rates, and the impact of tension in the Middle East on morale.
Weakness prevailed in most indicators, as the MSCI Global Stock Index broadly fell by 1 percent, after an 8 percent decline, on Tuesday, indicating a weak start to 2024, which may herald the end of the big gains for stocks and bonds that… It started late last year.
The Stoxx 600 index of European stocks opened flat, and stocks in the Asia-Pacific region outside Japan fell by 1.3 percent.
Caution increased before the release of the minutes of the US Federal Monetary Policy Committee meeting for December, at 7 pm (GMT), on Wednesday.
Last December, Federal Reserve officials expected 75 basis points of interest cuts in 2024, which prompted money market bets on twice this amount of cuts that led to a rise in all markets by the end of the year.
Futures markets still see a 70 percent chance that the Federal Reserve will begin reducing US borrowing costs from their current level of 22 years from their peak, starting in March.
“The market has already implemented a shift on behalf of the Fed,” strategists at Rabobank said in a research note, adding that the minutes “may still reinforce” the views of policymakers who are less committed to the impending cuts.
For his part, AG Bell Investment Director, Russ Mold, said: “We witnessed this significant rise at the end of last year when the markets convinced themselves that there would be a soft (economic) landing, quiet inflation and a rapid pivot to lowering interest rates. “But if you had an unexpected hard landing or an inflationary spike, you might get a slightly different scenario, so I think people are now pausing to think.”
A Reuters analysis of recent comments by Federal Reserve policymakers shows that although many of them noted an improvement in inflation and some easing of wage pressures, most did not say monetary easing was urgent.
Important US data this week should further clarify expectations, as the ISM manufacturing survey, due later on Wednesday, is scheduled to indicate whether the Fed has any new signs of a slowdown. The economy is cause for concern. The non-farm payrolls report in the United States is also scheduled to be released on Friday.
“The combination of event risk and weak liquidity at the end of the holiday increases the possibility of exaggerated market movements and increased volatility this week,” Capital.com analyst Kyle Rodda said.
He added: “All that is needed is an incentive that can come from the flow of data in the coming days.”
Futures markets pushed the Wall Street S&P 500 index to open flat later in the day, after falling 0.6 percent on Tuesday, a retreat from record high levels.
US Treasury bond yields also continued to rise with the sale of government debt securities on Wednesday. The benchmark 10-year yield, a measure of expected long-term borrowing costs, briefly rose above 4 percent on Tuesday. It was last trading up by about 2 basis points at 3.96 percent.
The yield on German 10-year bonds also rose by 3 basis points to reach 2.089 percent, rising for the fourth session in a row.
In contrast, the technology-focused Nasdaq index fell 1.6 percent on Tuesday. Affected by Apple’s decline of approximately 3 percent to its lowest level in seven weeks, after Barclays downgraded its stock rating.
2024-01-03 11:11:32
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