subscribe Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Subscribe now
Picture: 123RF/monsitj
Picture: 123RF/monsitj

London — European and Asian shares slipped on Monday at the start of an agenda-setting week for markets in which likely interest rate hikes in Europe and the US, as well as US jobs and wage data will give investors a fresh update on the battle against inflation.

Markets expectations are that the Federal Reserve will raise rates by 25 basis points on Wednesday, followed the day after by half-point hikes from the Bank of England and European Central Bank (ECB), and any deviation from that script would be a shock.

Earnings from tech giants will also test the mettle of Wall Street bulls, who are looking to propel the Nasdaq to its best January since 2001.

Europe’s benchmark Stoxx index fell 0.5% on Monday morning, echoing a slight dip in MSCI’s broadest index of Asia-Pacific shares outside Japan, which has surged 11% in January so far as China’s reopening bolsters its economy.

US stocks are set to follow the nervous Monday mood with S&P 500 futures and Nasdaq futures down nearly 1%, as investors await guidance later in the week on the Fed’s policy.

Analysts expect a hawkish tone suggesting that more needs to be done to tame inflation.

“With US labour markets still tight, core inflation elevated and financial conditions easing, Fed chair [Jerome] Powell’s tone will be hawkish, stressing that a downshifting to a 25bp hike doesn’t mean a pause is coming,” said Bruce Kasman, chief economist at JPMorgan, who expects another rise in March.

“We also look for him to continue to push back against market pricing of rate cuts later this year.”

There is a lot of pushing to do given that futures expect rates to peak at 5% in March, only to fall back to 4.5% by year end.

The dollar index was flat ahead of the data, on course for a fourth straight monthly loss of more than 1.5% on growing expectations that the Fed is nearing the end of its rate-hike cycle.

Apple’s core

Yields on 10-year notes have fallen 33 basis points so far this month to 3.50%, essentially due to easing financial conditions even as the Fed talks tough on tightening.

That dovish outlook will also be tested by data on US payrolls, the employment cost index and various surveys by the ISM (Institute for Supply Management).

Reading on EU inflation could be important for whether the ECB signals a half-point rate rise for March, or opens the door to a slowdown in the pace of tightening.

As for Wall Street’s recent rally, much will depend on earnings from Apple, Amazon, Alphabet and Meta Platforms, among many other companies.

“Apple will give a glimpse into the overall demand story for consumers globally and a snapshot of the China supply chain issues starting to slowly abate,” analysts at Wedbush said in a note.

“Based on our recent Asia supply chain checks we believe iPhone 14 Pro demand is holding up firmer than expected,” they added. “Apple are likely to cut some costs around the edges, but we do not expect mass layoffs.”

Market pricing of early Fed easing has been a burden for the dollar, which has lost 1.6% so far this month to stand at 101.790 against a basket of major currencies.

The euro is up 1.5% for January at $1.0878 and just off a nine-month high. The dollar has even lost 1.3% against the yen to 129.27 despite the Bank of Japan’s dogged defence of its ultra-easy policies.

The drop in the dollar and yields has been a boon for gold, which is up 5.8% for the month so far at $1,930 an ounce.

The precious metal was flat on Monday ahead of the slew of central bank moves and data releases.

China’s rapid reopening is seen as a windfall for commodities in general, supporting everything from copper to iron ore to oil prices.


subscribe Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Subscribe now

Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.