Discover the latest developments in global shares and currency markets as U.S. holiday eases volatility. Gain insights into inflation, interest rates, and geopolitical tensions, and explore the impact on commodities, including crude oil and copper. Stay up-to-date with expert analysis and predictions.
Global shares experienced a slight uptick on Monday, with the dollar remaining relatively flat, as the Presidents’ Day holiday in the US gave non-US assets a brief respite from recent market volatility. However, investors remain cautious as they await the release of minutes from the Federal Reserve’s latest meeting and data on core inflation, which could indicate a potential rise in interest rates for a longer period.
Commodity-linked currencies, such as the Australian and Canadian dollar, saw some lift thanks to a rise in the price of crude oil and copper, while reports of North Korea firing missiles and Russia ramping up attacks in Ukraine before the one-year anniversary of the invasion heightened geopolitical tensions. The White House also reportedly planned new sanctions on Russia, while US Secretary of State Antony Blinken warned Beijing of consequences if it provided material support, including weapons, to Moscow.
In Europe, the STOXX 600 rose by 0.1%, skirting Friday’s one-week lows, while the MSCI All-World index rose 0.1%, helped by modest gains. The stock and bond markets’ roaring run higher in the first six weeks of the year has come to a screeching halt, following a flurry of U.S. data suggesting that the largest economy in the world is holding up far better than anticipated. This means interest rates will have to rise further and take longer to decline.
Investors previously dismissed warnings from US policymakers that inflation is far too high and far too persistent for comfort. They are now realizing that they may have been overly optimistic in their assumptions. Money markets indicate that investors now expect US rates to peak at around 5.3% by July, with a quarter-point rate cut possibly happening by December. This is a significant shift from expectations at the start of February for a peak below 5% by July and the first rate cut coming in just weeks later.
JPMorgan’s Head of Global and European Equity Strategy, Mislav Matejka, stated that “historically, equities do not typically bottom before the Fed is advanced with cutting, and we never saw a low before the Fed has even stopped hiking.” Matejka went on to say, “It might be premature to believe that the recession is off the table now when the Fed will have done 500bp+ of tightening in a year, and the impact of monetary policy tended to be felt with a lag on the real economy, of as much as 1-2 years. The damage has been done, and the fallout is likely still ahead of us.”
S&P 500 and Nasdaq futures drifted lower by 0.1-0.2%, with the S&P touching a two-week low on Friday. Analysts at BofA noted, “It’s the most aggressive Fed tightening in decades and US retail sales are at all-time highs; unemployment at 43-year lows; payrolls up over 500k in January and CPI/PPI inflation reaccelerating. That’s a Fed mission very much unaccomplished.”
The failure of the S&P 500 to break resistance at 4,200 could unleash a retreat to 3,800 by March 8, according to BofA.
This week’s earnings season will see major retailers Walmart and Home Depot provide updates on the health of the consumer. However, the release of the minutes of the Fed’s latest meeting on Wednesday may offer more insight into policymakers’ deliberations but could have less impact than usual because the meeting took place after January’s bumper payrolls and retail sales reports. Additionally, the Fed’s preferred measure of inflation, the core personal consumption expenditures index (PCE), lands on Friday. It is expected to have risen by 0.4% in January.
Keywords: U.S. interest rates and global shares, Commodity-linked currencies and global markets, North Korea missile tests and global tensions, Sanctions on Russia and global politics, Impact of U.S. holiday on global markets, Fed meeting minutes and market expectations, Core inflation data and interest rate risks, Stock and bond prices performance in 2022, Fed tightening and economic impact, Recession risks in global markets, S&P 500 and Nasdaq futures performance, U.S. retail sales and employment data, Fed mission and market expectations, Market resistance and potential retreat, Fed deliberations and market impact, Personal consumption expenditures index, Chinese economy and commodity prices, Offshore yuan exchange rates, Major retailers’ earnings reports, Consumer spending and market outlook.