Global stock markets falling due t possible Fed rate hike
2023.02.17 09:17
Global stock markets falling due t possible Fed rate hike
By Tiffany Smith
Budrigannews.com – Friday saw global stock markets decline and the dollar rise to six-week highs as employment data rekindled expectations that the U.S. central bank would continue its policy of monetary tightening.
Overnight, the U.S. Labor Department released data indicating that monthly producer prices increased in January and that the number of Americans submitting new claims for unemployment benefits dropped unexpectedly last week.
In addition to the inflation and employment data released since the beginning of February, which have jittered global markets, the data was interpreted as a further sign that price pressures may remain stickier than markets believed at the beginning of the year.
At 1248 GMT, the broadest index of global stocks managed by MSCI saw a 0.4% decline to 645.65—one-week lows.
At 1248 GMT, MSCI’s broadest index of Asia-Pacific shares outside of Japan lost 1.35 percent to 529.53, its lowest level since January 9. The index is headed for its third consecutive week of losses and is down 3% for the month.
The pan-European index fell 0.38 percent in Europe, marking its first daily decline this week. The German fell 0.93 percent. By 1248 GMT, French blue-chip stocks had fallen 0.66 percent and 0.16 percent from their all-time highs, respectively.
The performance of stocks across the Atlantic was also expected to decline by 0.6%.
In recent sessions, traders have increased their wagers on how far the Fed will hike, now pricing in a July peak around 5.3 percent. Traders are only pricing in a 75% chance of a 25 bps rate cut in December, which has reduced bets on a rate cut at the end of the year.
“Inflation will not decrease in a straight line, and neither will it rise in a straight line.” “For a lot of people, this week has been a wake-up call,” stated Michael Hewson, chief market analyst at CMC Markets UK.
He stated that inflation’s peak and subsequent sharp decline was the foundation for the market optimism in the United States since the beginning of the year.
“Those who expected U.S. rate cuts at the end of this year are now out of luck. Treasuries’ two-year yields have finally reached their optimal level, he added.
Two-year U.S. Treasury yields, which are sensitive to interest rate expectations, have reached three-month highs of 4.69 percent as a result of bets on higher peak rates. At 1248 GMT on Friday, the yield on 10-year Treasuries was 3.88 percent, up about 5 basis points.
The, which measures the U.S. currency against six major rivals, rose as much as 0.4% on Friday to 104.24, a new six-week high, helped along by bets on higher rates.
Both the euro and sterling suffered as a result, falling to their lowest levels in more than a month. At 1248 GMT, the euro was at $1.0618, down 0.5 percent, and sterling was at $1.1943, down 0.4 percent for the day.
According to Florian Ielpo, head of macro at Lombard Odier Asset Management, it is difficult to predict how the markets will interpret the Fed’s subsequent actions regarding inflation.
“Two instruments are dominating the markets. Ielpo stated, “While there has been no surge in implied volatility options, intraday stock prices and credit spreads see a lot of volatility and nervousness.”
On Thursday, two Fed officials said that the US central bank probably should have raised interest rates more than it did earlier this month. They also said that increasing borrowing costs was necessary to bring inflation back to levels that are desired.
After a year of jumbo rate increases, the Federal Reserve decided to slow down the rate of interest rate increases at its policy meeting on January 31 and February 1, raising rates by 25 basis points to 4.50 percent-4.75%.
Elsewhere, it was at $82.53, down more than 3% on the day at the time of writing, after falling 3.30 percent to $75.91 per barrel.
