Stocks are shaking as the week of rate hikes approaches

SYDNEY/LONDON (Reuters) – Stocks fell on Monday at the start of an agenda-setting week for markets as potential interest rate hikes in Europe and the United States, as well as US jobs and wages data, will give markets a fresh update on the battle against inflation.

Investors expect the Federal Reserve to raise interest rates by 25 basis points on Wednesday, followed the next day by a half-point hike in interest rates from the Bank of England and the European Central Bank, and any deviation from this scenario would be a real shock.

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

The European benchmark STOXX fell 0.5% Monday morning, echoing a slight decline in MSCI’s broadest index of Asia-Pacific shares outside Japan. (.MIAPJ0000PUS)which is up 11% in January so far, as China’s reopening boosts its economy.

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

Analysts expect a hawkish tone that indicates more must be done to tame inflation. Read more

“With US labor markets continuing to tighten, core inflation rising, and financial conditions easing, Fed Chair Powell’s tone will be hawkish,” said Bruce Kasman, chief economist at JPMorgan, stressing that a shift to a 25 basis point increase does not mean that There is a pause coming.” , which expects another rise in March.

“We also look forward to him continuing to resist market pricing in interest rate cuts later this year,” he added.

There’s a lot of lobbying to do since futures currently expect rates to peak at 5% in March, and then drop to 4.5% by the end of the year.

The dollar index was flat ahead of the data, on track for a fourth consecutive monthly loss of more than 1.5% as expectations mount that the Federal Reserve is nearing the end of its rate-raising cycle.

The core of Apple

10-year yields are down 33 basis points so far this month to 3.50%, mainly due to accommodative financial conditions even as the Fed’s hawkish talks on tightening.

This pessimistic view will also be tested by US payroll data, Employment Cost Index and several ISM surveys.

A reading on EU inflation could be important as to whether the ECB signals a half-point rate hike for March, or opens the door to a slowdown in the pace of tightening. Read more

As for the recent rally on Wall Street, a lot will depend on Apple’s earnings (AAPL.O)Amazon.com (AMZN.O)Alphabet Inc (GOOGL.O) and meta platforms (META.O)among many others.

“Apple will provide a glimpse into the overall consumer demand story globally, and a snapshot of supply chain issues in China will slowly begin to ease,” analysts at Wedbush wrote.

They added, “Based on our recent examinations of the supply chain in Asia, we believe demand for iPhone 14 Pro is holding up more strongly than expected.” “Apple will probably cut some costs, but we don’t expect mass layoffs.”

Market pricing of early federal easing has weighed on the greenback, which has lost 1.6% so far this month to stand at 101,790 against a basket of major currencies.

The euro rose 1.5% for the month of January at $1.0878, close to a nine-month high. The dollar lost 1.3% against the yen to 129.27 despite the Bank of Japan’s dogged defense of its ultra-easy policies.

The dollar’s decline and yields have 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 a series of major 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.

The oil market was hesitant amid concerns that a Fed rate hike could choke off demand for fuel, with Brent crude down nearly 1% to $85.88 a barrel, while US crude slipped 87 cents to $78.8.

(Reporting by Wayne Cole and Lawrence White) Editing by Christopher Cushing and Aaron Kuyor

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