LDN - Business

Marketmind: 'Soft landing' or 'no landing'?

[January 31, 2023] A look at the day ahead in U.S. and global markets from Mike Dolan

There's an uncomfortable feeling in markets this week that good news may be bad news once again - mainly because of what the former means for this week's big central banking set pieces.

As U.S. Federal Reserve's Federal Open Market Committee kicks off its two-day policymaking meeting, the economic news from around the world brightened considerably.

Possibly wary of a premature easing of financial conditions before its tightening campaign is finished, some investors suspect the Fed may want to hang tough for a bit longer - stressing more needs to be done to ensure inflation is licked even as it slows the pace of rate hikes another notch to a quarter point rise on Wednesday.

Another one-two of half point rate rises from the European Central Bank and Bank of England the following day adds to the trepidation, not least with Spain reminding everyone on Monday that inflation rates can re-accelerate again even after peaking.

And if global recession is avoided, the hawkishness may persist. That's why China's new year bounce back from COVID-lockdowns and the euro zone dodging a downturn due to falling energy prices in a warm winter matter so much. They account for the world's second and third biggest economic areas.

China's economic activity swung back to growth in January after three months of contraction, according to official business surveys released on Tuesday.

The euro zone economy confounded forecasts for a quarterly contraction of gross domestic product in the final three months of 2022. Eurostat estimated GDP in the bloc rose 0.1% in Q4 despite consensus expectations for a fall of 0.1%.

And if the significant energy price relief of the past two months means activity picked up further early this year, the long-standing assumptions for a winter euro zone recession will evaporate.

Underlining the point, the International Monetary Fund on Tuesday raised its 2023 global growth outlook slightly due to "surprisingly resilient" demand in the United States and Europe, easing energy costs and China's reopening.

Dogged by Brexit, tax rises and serial labour strikes, Britain was the clear outlier and is the only G7 nation to have suffered a cut to its 2023 IMF, with the economy set to shrink by 0.6% this year - a sharp downgrade from the prior IMF forecast.

The constellation leaves markets on the back foot as they await the big monetary policy decisions.

[to top of second column]

An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst

Deep in the weeds of the latest corporate earnings season - with more than a fifth of S&P500 firms reporting this week alone and Apple, Amazon and Alphabet all due on Thursday - Wall St stock futures remain in the red after a dour start to the week on Monday. European and Asia bourses were lower too.

The dollar has picked up across the board, with two-year U.S. Treasury yields giving back only some of their gains to near three-week highs on Monday.

Despite the upbeat macro news, China tech stocks dropped 1.7% on media reports that the Biden administration has stopped approving licenses for U.S. companies to export most items to China's Huawei, signalling new tension in the Sino-U.S. tech war.

UniCredit jumped 8.1% to the top of STOXX 600 after the giant Italian lender pledged to return 5.25 billion euros ($5.69 billion) to investors based on its 2022 results after posting its best profit in more than a decade.

UBS shares fell 3% after the Swiss banking giant predicted an "uncertain" year ahead plagued by accelerating inflation and higher interest rates - even as it beat estimates, upped its dividend and proposed another $5 billion stock buyback this year.

Indian billionaire Gautam Adani's $2.5 billion share sale inched closer to full subscription on Tuesday as investors pumped in funds after a tumultuous week for his group in which its stocks were pummelled by a scathing short-seller report

Key developments that may provide direction to U.S. markets later on Tuesday:

* U.S. Federal Reserve's Federal Open Market Committee starts two-day meeting

* U.S. Q4 employment costs, Jan consumer confidence, Chicago PMI business survey, Dallas Fed services index, Nov house prices

* U.S. corp earnings: Exxon Mobil, Marathon, Pfizer, McDonald's, UPS, Amgen, Caterpillar, AMD, Stryker, Mondelez, Moody's, GM, MSCI, Electronic Arts, Spotify, Snap, Chubb, Western Digital, Juniper Networks, Boston Properties, Edwards Lifesciences, Match, Sysco, Corning, Pentair, Intl Paper, AO Smith, Dover

(By Mike Dolan, editing by Ed Osmond, mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)

Back to top