Stocks stalled as rate cut hopes face pivotal week

[December 11, 2023]  By Wayne Cole and Lawrence White

LONDON (Reuters) -Shares limped lower on Monday in a week packed with a quintet of rich world central bank meetings and data on U.S. inflation that could make or break market hopes for a rapid-fire round of rate cuts early next year.

An upbeat U.S. payrolls report has already seen investors scale back expectations for a March cut by the Federal Reserve, though May remains priced at a 76% chance.

The Fed is considered certain to hold rates at 5.25-5.50% this week, putting the focus on the so-called dot plots for rates and Chair Jerome Powell's press conference.

The consumer price report for November on Tuesday will also influence the outlook, with analysts forecasting an unchanged headline rate and a 0.3% rise in the core.

"We look for another Fed-friendly CPI report but, barring surprises, anticipate the policy statement to signal that economic conditions have not changed enough for officials to drop their tightening bias just yet," said John Briggs, global head of strategy at NatWest Markets.

"We think Powell will leave the option of a possible hike on the table, but the hurdle seems quite high for the Fed to follow through," he added. "We also expect the ECB to cut early while the BoE will continue to push back against market pricing of cuts in the first half of 2024."

The European Central Bank, Bank of England (BoE), Norges Bank and the Swiss National Bank (SNB) all meet on Thursday, with Norway the only one considered a possible hiker. There is also a risk the SNB may toy with renewed intervention to weaken the franc.

With so much riding on the outcomes, investors were understandably cautious and MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.32%, while Europe's benchmark STOXX index nudged down 0.08%.

S&P futures looked set for a similarly muted start to the day, down 0.09% ahead of the U.S. market open.

A trader works at Frankfurt's stock exchange in Frankfurt, Germany, March 12, 2020. REUTERS/Ralph Orlowski/File Photo

BONDS FOR SALE

The Treasury market faces a test of its own in the shape of $108 billion in new supply of three-year, 10-year and 30-year paper. Yields on 10-year notes were steady at 4.25% having risen on Friday in the wake of the jobs report, though they still ended flat on the week. [US/]

In currency markets all eyes were on the yen as speculation swirled as to whether the Bank of Japan would signal another step away from its super easy policy at a meeting next week.

The dollar rose to touch 146.28 yen on Monday after analysts at Goldman Sachs said in a note the Bank of Japan could disappoint overseas investors by not moving this month, while Bloomberg similarly reported the BOJ sees little need to end negative rates in December.

The dollar also gained on the euro at $1.0765, which was pressured by market pricing for early ECB rate cuts. [FRX/]

In commodity markets, gold took a knock after the jobs report and was last down at $1,997 an ounce. [GOL/]

Oil prices edged higher, after sliding 3.9% last week to five-month lows amid doubts that all OPEC+ members would stick with supply cuts. Prices got some support when Washington announced it would rebuild its strategic oil reserves. [O/R]

The market will also be watching the outcome of the COP28 climate summit, which is working on a first-of-its-kind deal to phase out the world's use of fossil fuels.

Brent was up 54 cents at $76.4 a barrel, while U.S. crude added 52 cents to $71.75.

(Reporting by Wayne Cole and Lawrence White; Editing by Sam Holmes, Edwina Gibbs and Alex Richardson)

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