LDN - Business

Stocks slide, dollar clings on as data challenges Fed pause hopes

[December 06, 2022] By Anshuman Daga and Alun John

SINGAPORE/LONDON (Reuters) - Global stocks headed for a third straight day of losses on Tuesday and the dollar held most of its gains from the previous day after U.S. data drove speculation the Federal Reserve will stick longer with aggressive interest rate rises.

MSCI's world index fell 0.3%, set for a third straight session of declines after hitting a three-month high last Thursday.

"A reassuring trend was in place - policy tightening, leading to growth slowdown leading to slower inflation - which allowed this correction in risk assets and the dollar," said Samy Chaar chief economist at Lombard Odier.

"Then we had two important bits of data that went the other way, which if not calling that trend into question, do show there will be bumps in the road."

Data released on Monday showed U.S. services industry activity unexpectedly picked up in November following a robust U.S. payrolls report published Friday - both of which raised doubts over whether the Fed would go for smaller hikes in interest rates just yet.

Aggressive U.S. rate increases earlier in the year had caused stocks to tumble and U.S. treasury yields and the dollar to soar, before hopes that a pause in rate hikes was approaching caused these trend to reverse.

Tech stocks which are often more sensitive to broader shifts in sentiment, were among the larger decliners on Tuesday with Europe's STOXX tech sub index down 0.5%, Hong Kong listed tech giants 1.8% lower and Korea's tech-heavy KOSPI benchmark shedding 1%.

The oil and gas sector also suffered after a near-3.5% slide in crude oil prices overnight. Shell, BP and TotalEnergies were each down 1-3%, and were among the biggest drags on the pan-European index.

U.S. stocks declined on Monday, but futures pointed to a slightly higher open for the S&P500.

RATE HIKE DOWN UNDER

Next week will be busy for investors with the Fed, European Central Bank and Bank of England all due to hold meetings, but the Reserve Bank of Australia got in ahead of its peers meeting Tuesday and raising interest rates to decade highsand sticking with a prediction of further hikes ahead.

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Traders are pictured at their desks in front of the DAX board at the stock exchange in Frankfurt, Germany July 29, 2015. REUTERS/Remote/Pawel Kopczynski

The Australian dollar gained 0.55% and the 10-year bond yield ticked up a little after the decision.

U.S. policy makers are quiet ahead of their meeting next week, but the ECB chief economist Philip Lane told the Milano Finanza newspaper the central bank will have to raise interest rates several more times to tame price pressures, even if headline inflation is now close to its peak.

The dollar was slightly softer on the day, but still holding onto much of its gains from Monday after the services data.

The greenback was at 136 yen, down 0.5% after a 1.8% jump the previous day thanks in part to the services data, while the euro was at $1.0520, up around 0.2% having fallen 0.45% the previous day. [FRX/]

U.S. Treasuries on Tuesday also regained a little of their losses from the previous day, the benchmark 10-year yield was last 3.5515% down 4.8 basis points a day after its near 10 basis point increase. [US/]

European yields also dropped, and the euro zone benchmark, the German 10 year bund yield was 5 basis points lower at 1.998%. [GVD/EUR]

Oil prices were volatile as traders tried to balance, economic uncertainty around Fed tightening, the impact of a price cap placed on Russian oil and prospects of a demand boost in China. [O/R]

Brent crude futures lost 1.3% to $81.60 a barrel. U.S. crude fell 1.5% to $75.76.

Gold was at $1,778 an ounce having hit a five-month high over $1,809 on Monday. [GOL/]

(Reporting by Anshuman Daga in Singapore and Alun John in London; Editing by Bradley Perrett, Simon Cameron-Moore and Angus MacSwan)

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