Shares in shipping companies rally but global markets slip

London/Sydney — World stocks slipped on Monday, while the dollar steadied ahead of a week of activity that includes a Bank of Japan (BOJ) policy announcement and a key reading on US inflation.

Iranian-backed Houthi militants have stepped up attacks on vessels in the Red Sea. On Monday that pushed up shares in big shipping companies, particularly in Europe, on the view that they may increase their rates in response, while crude oil eased modestly.

MSCI’s broadest index of world shares dipped 0.1%. European shares opened on a slide, led by a decline in real estate stocks, but then remained flat after shipping stocks rose across European exchanges.

The pan-European stock index traded largely flat by 10.21am GMT, after its fifth straight weekly gain on Friday — its longest streak since April.

By 10.23am GMT, D’Amico International Shipping, Hapag Lloyd and Hafnia gained between 2% and 4%. Frankfurt-listed shares in Scorpio Tankers and Nordic American Tankers rose 5% and 8%, respectively.

Oil prices fell towards last week’s five-month low amid doubts that all Opec+ producers will stick with caps on output. Lower exports from Russia and the attacks in the Red Sea seemed priced in as Brent fell 64c to $75.93 a barrel, while US crude fell 61c to $70.82 by 10.30am GMT.

Florian Ielpo, head of macro at Lombard Odier Investment Managers, said that in recent days he has seen less market reaction to macroeconomic data and more moves in stock and bond markets after remarks made by central bank policymakers.

“We will see this week, genuinely, how the market digests a Fed pivot,” said Ielpo. He noted that so far stocks have risen and credit spreads widened, with a growing difference between corporate and sovereign bond yields with the same maturity.

The BOJ’s policy decision on Tuesday is likely to be the main event in Asia this week. Seventeen out of 28 economists expect April as the kickoff for negative rates to be scrapped, making the BOJ one of the few central banks in the world actually tightening.

“Since the last meeting in October, 10-year [Japanese government bond] yields have fallen and the yen has appreciated, giving the BOJ little incentive to revise policy at this stage,” said Barclays economist Christian Keller.

None of the analysts polled by Reuters expects a definitive move at this week’s meeting, but policymakers might start laying the groundwork for an eventual shift.

South Korea’s main index closed 0.3% higher, showing no obvious reaction to reports North Korea had fired a ballistic missile off its east coast.

S&P 500 futures inched up 0.3%, while Nasdaq futures added 0.2%.

In the US, a reading on the core personal consumption expenditure (PCE) index due on Friday is forecast by analysts to have risen 0.2% in November, with the annual inflation rate at its slowest since mid-2021 at 3.4%, according to economists polled by Reuters.

Analysts suspect the balance of risk is tilted to the downside and a rise of 0.1% for the month would see the six-month annualised pace of inflation slow to just 2.1% — almost at the Federal Reserve’s target of 2%.

Markets reckon the slowdown in inflation means the Fed will have to ease policy just to stop real rates from rising, and they are wagering on early and aggressive action.

New York Fed president John Williams did try to temper some of these expectations on Friday by saying there was no talk of easing by policymakers, but markets shrugged off his remarks.

Two-year treasury yields ticked up only slightly in response to about 4.41%, the lowest since May. Yields on 10-year notes stood at 3.9%, having dived 33 basis points last week in the biggest weekly fall since early 2020.

Fed fund futures imply a 74% chance of a rate cut as early as March, while May has 39 basis points (bps) of easing priced in. The market also implies at least 140bps of cuts for all of 2024.

Analysts at Goldman Sachs said in a client note they expect five cuts in 2024 and three more cuts in 2025.

The market’s dovish outlook for US rates saw the dollar slip 0.2% against a basket of currencies last week, though the Fed is hardly alone in the rate-cutting stakes. Markets imply about 150bps of easing by the European Central Bank in 2024, and 113bps of cuts from the Bank of England.

That outlook restrained the euro at $1.0921, having pulled back from a top of $1.1004 on Friday. The dollar was looking more vulnerable against the yen at ¥142.42, having slid 1.9% last week.

The drop in the dollar and yields should be positive for gold at $2,022/oz, though that was short of its recent peak of $2,135.40.

Reuters