Global stocks set for weekly loss as rate rise worries temper China
reopening cheer
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[January 20, 2023] By
Kevin Buckland and Naomi Rovnick
TOKYO/LONDON (Reuters) -Global stocks were set for their first weekly
loss of the year so far, as a rally driven by hopes of China fuelling a
global economic recovery was tempered by central bankers vowing to
persist with rate hikes.
The MSCI World Price Index edged 0.3% higher into the London morning on
Friday, boosted by gains in Asia, after Chinese authorities said on
Thursday that the number of COVID-19 patients needing critical care in
hospitals had peaked.
The all-country equity gauge was also on course to notch up a loss of
around 1.4% for the week, although it remained almost 4% ahead this
month following an optimistic start to 2023.
Some analysts say equities had been showing too much optimism about an
economic improvement, as both the U.S. Federal Reserve and the European
Central Bank remain resolute about continuing to tighten monetary policy
to battle inflation.
The Stoxx Europe 600 share index, which rose 0.1% on Friday, has during
the first three weeks of January recovered almost half of its 12.9% loss
of 2022. That bounce was driven by China reopening trades and easing
natural gas prices.
"The [European] market remains unprepared for the wave of pain that is
coming from credit conditions tightening," Andreas Bruckner, European
equity strategist at Bank of America, said.
ECB President Christine Lagarde told the World Economic Forum's Davos
gathering on Thursday that the bank would stay the course with raising
interest rates.
The U.S. Fed also looks set to sustain its tightening campaign, even
after reports on Wednesday showed retail sales, producer prices and
production at U.S. factories fell more than expected in December.
On Thursday, U.S. weekly jobless claims were lower than expected,
pointing to a tight labour market and sending Wall Street's S&P 500
share gauge 0.8% lower.
Boston Fed President Susan Collins said the central bank would probably
need to raise rates to "just above" 5%, then hold them there, while Fed
Vice Chair Lael Brainard said that despite the recent moderation in
inflation, it remains high and "policy will need to be sufficiently
restrictive for some time".
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Men walk past an electric board
displaying Nikkei and other countries' indexes outside a brokerage
in Tokyo, Japan January 16, 2023. The characters on the screen
reads,"government bonds". REUTERS/Kim Kyung-Hoon
Those comments by "usually reliable Fed dove" Brainard in particular
are "compounding rate hike fears", said Tony Sycamore, an analyst at
IG.
"The labour market is just a little too hot to back off," Sycamore
added.
The market expects the Fed's benchmark interest rate will be a touch
below 5% in June, implying just over 50 basis points of additional
tightening.
On Friday morning, S&P futures ticked 0.3% higher.
The dollar index - which measures the U.S. currency against six
peers, including the euro and yen - edged 0.14 higher to 102.17,
adding a bit more distance from the 7-1/2-month low of 101.51
reached on Wednesday.
The benchmark 10-year Treasury yield was around 3.4% after bouncing
off the lowest since mid-September at 3.321% overnight.
In Asia, Japanese government bond yields stayed depressed.
The 10-year JGB yields slipped half a basis point to 0.4%, hovering
around that level since getting knocked back from above the Bank of
Japan's 0.5% policy ceiling on Wednesday, when the central bank
refrained from further tweaks to its yield curve controls.
The yen, which has been volatile as traders debate when the BOJ
might eventually abandon its controversial policy of buying up vast
quantities of JGBs to suppress borrowing costs, weakened 0.5% to
128.9 per dollar.
Elsewhere, crude oil prices continued to rise. Brent futures for
March delivery gained 30 cents, or 0.35%, to $86.46 a barrel, while
U.S. crude advanced 49 cents to $80.82 per barrel, a 0.6% gain.
(Reporting by Naomi Rovnick and Kevin Buckland; Editing by
Jacqueline Wong and Sharon Singleton)
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