European stocks fell and Wall Street equity futures were steady as investors weighed hawkish comments from Federal Reserve officials and looked toward the release of US inflation data due on Thursday for clarity on the trajectory for interest rates.
(Bloomberg) — European stocks fell and Wall Street equity futures were steady as investors weighed hawkish comments from Federal Reserve officials and looked toward the release of US inflation data due on Thursday for clarity on the trajectory for interest rates.
The Stoxx Europe 600 Index dropped 0.7%, retreating from an eight-month high as retail and technology stocks led declines. Contracts on the S&P 500 and Nasdaq 100 pared earlier losses. Richard Branson’s Virgin Orbit Holdings Inc. tumbled in US premarket trading after a failed attempt to send Britain’s first satellites into orbit from its own soil.
Traders hoping for a quick end to aggressive rate hikes had a reality check on Monday, when San Francisco Fed president Mary Daly said she expects the central bank to raise rates to somewhere over 5%. Her Atlanta counterpart Raphael Bostic said policy makers should hike above 5% by early in the second quarter and then go on hold for “a long time.” Fed Chairman Jerome Powell speaks later at an event in Sweden.
“The same pattern keeps emerging, with investors clinging onto any data which appears to show the economy is cooling off, only to see their hopes dashed by policymakers who clearly believe the inflation-busting job is far from over,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
The inflation report, which will come out almost a week after the latest jobs data showed wage growth has decelerated, will be among the last such readings Fed policy makers will see before their Jan. 31-Feb. 1 gathering.
The Bloomberg Dollar Spot Index was little changed, while Treasury 10-year yields crept higher to 3.55%.
“There has been increasing hope of a softish landing for the US economy – that hope could be punctured if the Fed retains a hard line on rates,” said Russ Mould, investment director at AJ Bell. “All eyes will be on Fed chair Jerome Powell when he addresses a conference on central bank independence in Stockholm later. Inflation figures out on Thursday also represent a test for the relative optimism of the markets so far this year.”
In brighter news for European assets, economists at Goldman Sachs said they no longer predict a euro-zone recession after the economy proved more resilient at the end of 2022, natural gas prices fell sharply and China abandoned Covid-19 restrictions earlier than anticipated.
Gross domestic product is now expected to increase 0.6% this year, compared with an earlier forecast for a contraction of 0.1%. Economists led by Jari Stehn warn in a report to clients of weak growth during the winter given the energy crisis, and say headline inflation will ease faster than thought, to about 3.25% by end-2023.
Key events this week:
- US wholesale inventories, Tuesday
- Fed Chair Jerome Powell among speakers at Riksbank symposium in Stockholm, Tuesday
- World Bank expected to release global economic prospects report, Tuesday
- ECB Governing Council members speak at Euromoney conference in Vienna, Wednesday
- US CPI, initial jobless claims, Thursday
- St Louis Fed President James Bullard at Wisconsin Bankers Association virtual event, Thursday
- Richmond Fed President Thomas Barkin speaks at VBA/VA Chamber, Thursday
- China trade, Friday
- US University of Michigan consumer sentiment, Friday
- Citigroup, JPMorgan Chase, Wells Fargo report earnings, Friday
This week’s MLIVE Pulse Survey:
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.7% as of 9:46 a.m. London time
- S&P 500 futures fell 0.1%
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average fell 0.2%
- The MSCI Asia Pacific Index was little changed
- The MSCI Emerging Markets Index fell 0.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0738
- The Japanese yen was little changed at 131.90 per dollar
- The offshore yuan was little changed at 6.7880 per dollar
- The British pound fell 0.2% to $1.2162
Cryptocurrencies
- Bitcoin rose 0.4% to $17,252.91
- Ether rose 0.9% to $1,329.91
Bonds
- The yield on 10-year Treasuries advanced one basis point to 3.55%
- Germany’s 10-year yield advanced four basis points to 2.27%
- Britain’s 10-year yield advanced two basis points to 3.55%
Commodities
- Brent crude rose 0.2% to $79.78 a barrel
- Spot gold rose 0.2% to $1,876.24 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott, Sagarika Jaisinghani and Tony Jordan.
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