Categories
Economic News

Stocks and bonds endure high US inflation and a hawkish Fed

Stocks and bonds endure high US inflation and a hawkish Fed

Major stock markets were muted on Monday as investors counted back to another reading on US inflation that could seal an expected rate hike by the Federal Reserve, boosting bond yields and punishing tech stocks.

The outbreak of corona virus cases around the world also threatens to dampen consumer spending and growth as the Fed considers shutting down the liquidity faucet; tough times for markets addicted to cheap money no conclusion. This made trading cautious with S&P 500 futures down 0.1% and NASDAQ futures up 0.1%. EUROSTOXX 50 and FTSE futures were both up 0.2%.
This made trading cautious, with S&P 500 futures down 0.1% and NASDAQ futures up 0.1%. EUROSTOXX 50 and FTSE futures were both up 0.2%. MSCI’s largest stock index in Asia-Pacific outside Japan gained 0.2%, while South Korea lost 1.0%.
China’s blue-chip stocks remained largely unchanged in recent years with easing policies that offset concerns about the real estate sector. Analysts are concerned that the October-March rate hike will follow as core inflation hit a multi-year high of 5.4% in the US Consumer Price Report released on Wednesday.

While December’s payrolls data fell short of expectations, the unemployment rate fell to just 3.9% and wage strength suggests the economy is running out of workers. “This is consistent with the evolution of the Fed’s view that the labor market is approaching or has reached a peak in employment with increasing wage pressures,” said NatWest Markets analysts.

“This will add to speculation of a March rally, and we have retracted our expectation that the Fed will take off in March instead of June. A wide range of Fed officials will be on hand to present their final thoughts this week, including Chairman Jerome Powell and Governor Lael Brainard, who face confirmation hearings. Market moves rapidly to reflect risk with futures contracts implying more than 70% chance of a 0.25% rally in March and at least two more gains by year-end.

Technology and growth stocks fell as investors turned to banks and energy companies, while bonds beat. 10-year US Treasury yields are near their highest levels last seen in early 2020 at 1.765%, after rising 25 basis points last week in their biggest move since late 2019. Chart The next target is the 1.95/1.97% area. U/S “We believe the rise in long-term Treasury yields has yet to resume,” said Nicholas Farr, economist at Capital Economics. “Markets may still be underestimating how much lending rates will rise over the next few years, so we expect 10-year yields to increase by around 50bp, to 2.25% by the end of 2023.’ The Fed’s hawkish turn tended to be in favor of the US dollar, although it took profits on Friday after the payrolls report fell short of high market expectations. The Dollar Index is held steady at 95,764, after falling 0.5% on Friday, but there is support at 95.568. The euro rebounded to $1.1354, keeping it near the top of the recent trading range of $1.184/1.1382. The Japanese yen halted after the recent decline to reach 115.64 as the dollar fell from last week’s high of 116.34. In commodities, gold was slightly more stable at $1,795 an ounce but below January’s high of $1,831. Oil prices remained steady, rising 5% last week, partly due to supply disruptions caused by unrest in Kazakhstan and power outages in Libya. Brent oil prices rose 7 cents to $81.82 a barrel, while US crude was unchanged at $78.90.