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Shares climbed yesterday while the euro advanced as investors weighed the prospect of Europe following the Federal Reserve with more outsized interest-rate hikes.
Japanese and Australian equities rose, European futures advanced and US contracts were steady after the S&P 500 and Nasdaq 100 snapped three-week losing streaks on Friday. Markets in China, Hong Kong and South Korea are closed for holidays.
The euro led gains versus the greenback after Bundesbank President Joachim Nagel signaled support for further interest-rate hikes in Europe. The yen pared Friday’s rebound, even after officials in Tokyo increased their jawboning of the currency over the weekend. Crude oil dropped almost 2 percent.
Investor focus is on August US inflation data due Tuesday, with headline CPI expected to cool to an 8 percent a year pace while the core measure that excludes food and energy is seen accelerating. Traders almost fully expect another jumbo-sized Fed hike next week, following two 75-basis-point increases.
“A downside surprise in US CPI is likely more of a concern and that could see the dollar weakening further,” Charu Chanana, a strategist at Saxo Capital Markets, said on Bloomberg Television. “We’ve seen some glimpses of that, you know, towards the end of last week. That could potentially be a risk to watch, particularly this week.”
Fed Bank of St Louis President James Bullard said he was leaning “more strongly” toward a third straight boost of that magnitude. His Kansas City counterpart Esther George noted officials have a “clear-cut” case for continuing to remove monetary support.
Markets also have to digest the implications of Ukraine’s counter-offensive, after its forces continued their rapid advance in the Kharkiv region, exploiting a retreat of Russian defenses.
The rebound in risk assets and the retreat in the dollar at the end of last week contrast with the hawkish remarks from Fed officials. That stance, and recession worries, has driven equities down to nearly oversold levels. The Levkovich Index, a sentiment gauge, fell to -16 last week, a hair away from the -17 level that defines panic. Bank of America Corp.’s bull-and-bear indicator slid to the “maximum bearish” level — often seen as a contrarian buy signal.
Signs of weakening demand for oil may underscore the potential that policy makers will be willing to slow the pace of tightening going forward.
West Texas Intermediate sank toward $85 a barrel amid concerns the outlook for consumption is worsening as global growth slows and China maintains its strategy of controlling Covid-19 by curbing activity. – Bloomberg
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