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Global stock markets faced a downturn as investors awaited key speeches from Federal Reserve officials, including Chair Jerome Powell, this week. A range of economic data from Germany and Italy, as well as comments from US policymakers, are under scrutiny to assess the central bank’s response to recent shifts in financial conditions.
Asian and European stock markets saw declines, with Japan’s Topix index underperforming due to a drop in Japanese bank shares. Falling bond yields have tempered expectations for higher profitability, leading investors to take profit in one of this year’s top-performing sectors. Chinese benchmarks also experienced fluctuations between gains and losses.
Despite the recent concerns, some investors maintain optimism about global equities. HSBC Holdings Plc strategists suggest that a double-digit rally in global equities could occur in 2024 if the Federal Reserve alters its monetary policy and avoids a recession.
Meanwhile, dollar bonds for two Chinese investment-grade developers continue to rally following discussions with the country’s central bank and regulators regarding financing needs and liquidity.
In the bond market, speculation is growing about a potential “dovish pivot” by the Federal Reserve, despite having embarked on a tightening cycle. This uncertainty raises the prospect of another false dawn, as indicated by Deutsche Bank macro strategist Henry Allen. Australia’s 10-year yield also declined, reflecting the central bank’s indication of a higher hurdle for further policy tightening.
Fed Bank of Minneapolis President Neel Kashkari believes that the fight against inflation is not yet won and that policymakers may consider additional tightening measures if necessary. On the other hand, Chicago Fed President Austan Goolsbee emphasizes that officials do not want to pre-commit to decisions on interest rates.
Several of the Fed’s more hawkish policymakers have noted that the cumulative tightening of financial conditions since July, with yields on 10-year Treasury bonds increasing by more than 100 basis points, could potentially dampen economic growth. Fed Governor Christopher Waller described this surge in yields as an “earthquake” for the bond market.
Key events to watch this week include Eurozone retail sales, German CPI data, speeches from Bank of England Governor Andrew Bailey, New York Fed President John Williams, and more.
Market Movements:
- S&P 500 futures fell 0.2%
- Nasdaq 100 futures fell 0.2%
- Japan’s Topix fell 1.2%
- Australia’s S&P/ASX 200 rose 0.3%
- Hong Kong’s Hang Seng fell 0.7%
- The Shanghai Composite fell 0.6%
- Euro Stoxx 50 futures fell 0.2%
Currency Updates:
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.1% to $1.0686
- The Japanese yen fell 0.2% to 150.68 per dollar
- The offshore yuan was little changed at 7.2809 per dollar
- The Australian dollar fell 0.1% to $0.6429
- The British pound fell 0.2% to $1.2276
Cryptocurrency Highlights:
- Bitcoin fell 0.8% to $35,229.52
- Ether fell 0.9% to $1,877.25
Bond Market Updates:
- The yield on 10-year Treasuries advanced three basis points to 4.60%
- Australia’s 10-year yield declined 11 basis points to 4.58%
Commodity Insights:
- West Texas Intermediate crude fell 0.4% to $77.09 a barrel
- Spot gold fell 0.2% to $1,966.22 an ounce
