LONDON/NEW YORK, Jan 3 (Reuters) – The dollar rose on Tuesday as oil prices fell, while U.S. stocks capped a rally in global stocks in a macro-packed week that could provide guidance on when and where U.S. interest rates might peak.
MSCI All World Index (.MIWD00000PUS) It was dragged down by losses in US stocks, up 0.2%. Dow Jones Industrial Average (.DJI) little changed, the S&P 500 (.SPX) 0.4% and the Nasdaq Composite fell (.IXIC) It lost 0.76%.
Losses in US stocks were led by a 12.2% drop in electric car maker Tesla. (TSLA.O) after missing Wall Street estimates for quarterly shipments. iPhone maker Apple Inc (AAPL.O) It fell 3.7% to its lowest level since June 2021 following a downgrade due to output cuts in China.
The dollar was signed ahead of the Federal Reserve’s release of minutes from its latest meeting on Wednesday, with expectations that they will signal further policy tightening.
The rise in the dollar weighed on oil prices, which were hit by worries about slowing global economic growth, especially after the data showed. China’s factory activity fell in December.
“We expect the December FOMC minutes to shed additional light on Fed officials’ policy views for 2023. Note that at the meeting, the Committee indicated broad expectations for a significantly higher rate this year,” TD Securities analysts noted.
The dollar index increased by 0.94% to 104.64.
The euro was the worst-performing currency against the dollar since late September, thanks to government measures that included natural gas bills for households and businesses, after German regional inflation data showed consumer price pressures eased sharply in December. .
This week’s US payrolls data is expected to show the labor market remains tight, while EU consumer prices may show a slight slowdown in inflation as energy prices ease.
“Energy base effects will lead to a significant reduction in inflation in major economies in 2023, but stickiness in key components, much of which stems from tight labor markets, will prevent early dovish policy by central banks,” the analysts said. NatWest Markets wrote in a note.
They expect interest rates to reach 5% in the US, 2.25% in the EU and 4.5% in the UK and remain there throughout the year. On the other hand, markets are pricing in a rate cut for the end of 2023, with federal funds futures hovering between 4.25% and 4.5% by December.
“What frustrates me this year is that we still don’t know the full impact of the very significant monetary tightening in the advanced world,” said Berenberg chief economist Callum Pickering.
“It takes a good year or 18 months for the full effect to kick in,” he said.
As consumers struggle to keep up with the rising cost of living and companies run out of room to protect profitability by raising their prices, central banks have expressed concern about rising wages.
However, Pickering said the labor market tends to lag the broader economy for some time, meaning there is a risk that central banks will raise interest rates more than the economy can bear.
“What central banks are driving is essentially hyper-cyclicality, meaning they over-stimulated in 2021 and created an inflationary boom, and then in 2022 they over-tightened and created a disinflationary recession. That’s exactly what you want central banks to do. it’s the opposite,” he said. .
EUROPEAN STOCK RALLY
In markets, European stocks rose on gains in classic defensive sectors such as healthcare and food and beverages. Drug manufacturers Novo Nordisk (NOVOb.CO)AstraZeneca (AZN.L) and Roche (ROG.S) It was among the biggest positive weights on the STOXX 600 (.STOXX)Together with Nestle (NESN.S)
STOXX rose 1.2% after losing 13% in 2022. FTSE 100 (.FTSE)The only major European index not traded on Monday rose 1.4%.
Markets had priced in the eventual US easing for a while, but the Bank of Japan’s shock upward shift in its ceiling for bond yields proved them very wrong.
BOJ is now considering raising inflation forecasts According to the Nikkei in January, it will show price growth close to its 2% target in fiscal years 2023 and 2024.
Such a step at the next political meeting to be held in January. 17-18 will only add to speculation about an end to the ultra-loose policy that has served as a backdrop for bond yields globally.
The policy shift boosted the yen, with the dollar depreciating 5% and the euro 2.3% in December.
The yen took a breather on Tuesday and fell 0.3% to 130.895 against the dollar. The dollar earlier hit a six-month low of 129.52 yen.
Oil succumbed to the dollar’s strength and worries about demand in China, the world’s second-largest economy, added to the decline.
A set of questionnaires showed China’s factory activity As COVID infections swept through production lines, they fell at their sharpest rate in nearly three years.
“China is entering the most dangerous weeks of the pandemic,” warned analysts at Capital Economics.
Brent oil lost 4.2% and reached $82.10 per barrel.
Reporting by Koh Qui Qing in New York and Amanda Cooper in London Additional reporting by Wayne Cole in Sydney Editing by Andrea Ricci and Matthew Lewis
Our standards: Thomson Reuters Trust Principles.
