The stock market saw a pause after a recent bounce back as equity future fluctuated on expectations of strong rate hikes by the Federal Reserve to tackle the highest inflation in decades.
MSCI Inc.’s Asia Pacific index saw tech stacks dragging it down. Hong Kong’s move to reduce the quarantine period failed to enthuse the market. At the same time, covid lockdowns in Chinese resort islands hit sentiments.
The Nasdaq 100 and S&P 500 contracts wavered after the global share gained consecutively for three weeks. European futures were upbeat with modest gains. More money tightening policy from the Federal government is expected after strong U.S. job data Friday pushed up the dollar and treasury bills.
The U.S. bond curve key portion has been almost at the bottom of the inverted level since 2000. Investors anticipate recession as the Fed tries to slow down the economy. The lower demand outlook remained a worry for crude oil, which stayed below the $90 a barrel level. Also, Bitcoin and gold struggled to make progress.
As a part of the rate increase globally, traders now expect the Fed to raise 75 basis points in September. The inflation data of the U.S. this week will lay the path for future policies and inject more market swings. The price pressures are now peaking, but it is unclear if they will persist at high levels.
In a note by Chris Weston, head of research of Pepperstone Group Ltd, the chances of Federal Reserve fund rates surpassing 4% after the inflation data is out will lead to higher volatility and more shorting opportunities.
The recent comments from Federal Reserve officials left a question mark on its pivot policy toward borrowing costs reduction next year.
Far from Over
The U.S. central bank is far from bringing down price pressures, according to Mary Daly, the Fed President of San Francisco. Michelle Bowman, Fed governor, said the central bank should consider large hikes of 75 basis points until inflation declines meaningfully.
Priya Misra, a strategist at T.D. Securities writes that the July report of U.S. payrolls will most probably enhance the Fed’s inclination to front load interest rate hikes until policy rates become neutral or overshoots by a good margin in the next few months.
The U.S. Senate, in the meanwhile, placed bills for climate, healthcare, and tax. This accelerates the slimmed-down version of President Biden’s domestic agenda of turning a path into law.
China’s trade surplus surged to a high as per incoming reports. Property sector woes and covid flareup add to the global headwinds that may affect the economic rebound for the nation.
Key events this week
- US CPI data on Wednesday
- President of Minneapolis Fed, Neel Kashkari, and President of Chicago Fed, Charles Evans, speak on Wednesday.
- US PP and initial jobless claims on Thursday
- Interview with Bloomberg Television on Thursday by Mary Daly, President of San Francisco Fed
- Consumer sentiment by U.S. University of Michigan on Friday.
