U.S. stocks fell as investors cowered ahead of the Federal Reserve’s policy decision on Wednesday, when the central bank is expected to raise interest rates to their highest level since the 2008 financial crisis.
Wall Street’s benchmark, the S&P 500, ended down 1.3% on Monday, while the tech-heavy Nasdaq Composite fell 2%.
The Fed is expected to raise interest rates by a quarter of a percentage point, continuing to reduce the magnitude of its hikes. Early data showed the US central bank’s aggressive efforts to fight inflation are paying off, but Chairman Jay Powell could still thwart expectations that the Fed will stop raising rates and cut them later in the year. the year.
“A key uncertainty ahead of the meeting will be how Powell judges evolving financial conditions,” wrote Thomas Costerg, senior U.S. economist at Pictet Wealth Management, in a note. “The main hawkish risk of this meeting is that Powell expresses unease with the recent easing of financial conditions and the sharp rise in stock prices so far this year.”
Investors are also eagerly awaiting fourth-quarter results from Apple and Alphabet in a busy week for corporate earnings.
“We maintain a less preferred position in US equities and the technology sector,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote on Monday. “We don’t see much scope for US markets to recover in the near term, particularly given our outlook for continued pressure on corporate earnings growth.”
The dollar index, which tracks the currency against a basket of six peers, gained 0.3%, while 10-year Treasury yields rose 0.03 percentage points to 3.55%. Bond yields move inversely to prices.
The region-wide Stoxx Europe 600 traded down 0.2% after new data showed a surprise 0.2% decline in German gross domestic product in the fourth quarter, as did the rate. Spain’s inflation rate rose 5.8 percent in the year to January, from 5.5 percent in December. The UK’s FTSE 100 ended the session up 0.3%.
Stock markets have rallied this year on growing optimism that global growth will be less anemic than expected, helped by falling energy prices in Europe and China’s abrupt reversal of zero-Covid measures in place since then. early 2020. spending – exactly what central banks, determined to bring down inflation, are trying to prevent.
Financial conditions have been further eased by a weaker dollar, lower Treasury yields and tighter credit spreads, ING analysts said, “and it may appear that any further easing, fueled by talk of a possible political easing in the second half, could undermine [the Fed’s] ongoing actions in the fight against inflation”.
The main question for the Bank of England, meanwhile, is whether it recognizes that its job is nearly done. “We suspect he is more likely to keep his options open,” the analysts said, adding that market expectations for European Central Bank rate cuts in 2024 were “premature.”
Prices for Brent crude, the international benchmark for oil, settled down 2% to $84.90 a barrel, after falling 1.1% last week. The American benchmark West Texas Intermediate fell 2.2% after losing 2% the previous week.
In Asia, Hong Kong’s Hang Seng index fell 2.7%, led by a 6% decline for Alibaba. The Chinese CSI 300 gained around 0.5%.
