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Global shares ease as central bank rate hikes loom

  • Crude oil prices are falling
  • Dollar changed little
  • US CPI on Tuesday, Fed meeting on Wednesday
  • ECB, BOE rate decisions on Thursday

LONDON, Dec. 12 (Reuters) – Global stocks fell on Monday as investors braced for the latest round of transatlantic rate hikes this year by a trio of central banks, hoping a hitherto strong pace of borrowing cost increases will finally show signs of recovery. easing.

Oil prices rose as a key pipeline supplying the United States remained closed, while Russian President Vladimir Putin threatened to cut production in retaliation for a Western price cap on its exports.

The dollar rose against the Japanese yen but fell against a basket of currencies after data released Friday showed US producer prices rose more than expected last month, pointing to continued inflationary pressures, higher than the main US consumer price index for November on Tuesday, when core inflation is expected to slow down on an annual basis.

“A risk calendar with heavy events this week will determine the core themes for 2023,” said ING Bank.

According to ING, the market consensus still underestimated the risk of inflation staying high longer and dangerously placed the Fed second in terms of interest rate cuts in the second half of next year.

The MSCI all-country stock index (.MIWD00000PUS) was down 0.3%, while the benchmark lost about 18% year-to-date, wiping out any gains made in 2021.

In Europe, the STOXX index (.STOXX) of 600 companies fell 0.7%.

Economists expect the Federal Reserve on Wednesday and the European Central Bank and Bank of England on Thursday to all raise rates by 50 basis points, still a lag from the 75 basis point increases seen at recent meetings.

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Patrick Spencer, vice chairman of equities at investment bank Baird, said central banks will take a less aggressive stance this week, although Tuesday’s CPI data will be crucial.

“It’s the last major week of the year, after this week you don’t have any real catalysts. If the CPI is a muted number, we’ll go to the races and have our year-end rally,” Spencer said.

But regardless of the CPI, deflationary pressures are mounting, with crude oil prices falling for the year, as well as iron ore, lumber and housing, Spencer said.

“All this talk about a recession, I think it’s definitely in the price, it’s in the markets. The key to a recession is generally employment, and I think employment will be stronger than people believe,” said Spencer.

Both S&P 500 futures and Nasdaq futures were little changed.

ASIAN STOCKS FALL

In Asia, MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 1.2%, wiping out nearly all of last week’s gains that came from optimism that China is finally opening up its economy with the dismantling of its zero-COVID policy.

Japan’s Nikkei (.N225) fell 0.2%.

China blue chips (.CSI300) fell 1.1% while the Hong Kong Hang Seng Index (.HSI) fell 2.2% as investor focus shifted from crippling COVID-19 restrictions to the wave of infections that are now disrupting the economy.

While the Fed is widely expected to raise rates by 50 basis points at its final meeting of 2022 on Wednesday, the focus will also be on the central bank’s updated economic projections and Fed Chairman Jerome Powell’s press conference.

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“We also want to understand if Jay Powell opens the door to a slowdown to a walk rate of 25bp from February – again, although in line with market prices, this could be assumed we are closer to the end of the walk cycle and is a modest USD negative,” said Chris Weston, chief research officer at Pepperstone.

Kevin Cummins, chief US economist at NatWest, said a surprise in November’s CPI report is unlikely to make the Fed back off from a 50 basis point rate hike, though it would play a bigger role in Powell’s policy statement and tone. press. conference.

In foreign exchange markets, the US dollar fell 0.143% to 104.89, although it was close to its five-month low of 104.1 a week ago.

Sterling remained flat at $1.2259, while the Australian dollar also fell 0.3% to $0.6745.

Treasury yields remained broadly stable on Monday. The yield on benchmark 10-year government bonds fell to 3.5433%, compared to the US closing price of 3.5670%. The two-year yield reached 4.3294%, a slight drop from the US closing rate of 4.330%.

Brent crude oil futures fell 0.4% at $75.77 a barrel, while US West Texas Intermediate crude was down $70.84 a barrel, at 0.3%.

Spot gold was 0.4% lower at $1,790 an ounce.

Reporting by Huw Jones, Editing by Bradley Perrett, Sam Holmes and David Evans

Our Standards: The Thomson Reuters Principles of Trust.

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