World stocks tread water as traders eye Fed pause prospects
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[June 06, 2023] By
Nell Mackenzie, Dhara Ranasinghe and Ankur Banerjee
LONDON (Reuters) -European stocks started Tuesday mixed, as soft U.S.
economic data reinforced expectations the Federal Reserve may skip an
interest rate hike when it meets next week.
The pan-European STOXX 600 index was up 0.1% to 460.40 at 0830 GMT. In
the previous session, the index dropped as data pointing to tepid U.S.
business activity sparked profit-taking following gains in the prior
week. Germany's DAX was flat, while London's FTSE dipped 0.3%.
British retail sales growth slowed to a seven-month low in May as
soaring food prices prompted shoppers to rein in spending on
non-essential items, the British Retail Consortium said on Tuesday.
MSCI's broadest index of world stocks was largely flat, while Tokyo's
Nikkei gained 0.90% and China's blue-chip index dropped almost 1%.
The Reserve Bank of Australia (RBA) raised interest rates and warned
that further hikes may be required to ensure inflation returns to
target. The RBA's move sets the stage for a slew of monetary policy
decisions from major central banks across the globe, with the Fed, the
European Central Bank and the Bank of Japan due to hold policy meetings
next week.
Three months ago, the question was how fast would rate hikes come. Now,
a pause and then more U.S. rates hikes could follow as a result of
sticky inflation, said Mike Kelly, head of multi-asset at PineBridge
Investments.
![](http://archives.lincolndailynews.com/2023/Jun/06/images/ads/current/hartsburggrain_sda_PROMGRAD_2023.png)
"We're actually still positioned on the notion that you can get a mild
U.S. recession without pulling the world into recession," he said.
A string of economic data along with last week's dovish rhetoric from
Fed officials has emboldened bets that the Fed will likely refrain from
lifting rates at its June 13-14 meeting.
Markets are pricing in an 82% chance of the Fed standing still, a sharp
jump from a 36% chance a week earlier, according to the CME FedWatch
tool.
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The London Stock Exchange Group offices
in the City of London, Britain, December 29, 2017. REUTERS/Toby
Melville/File Photo
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Data overnight showed the U.S. services sector barely grew in May as
new orders slowed, pushing a measure of prices paid by businesses
for inputs to a three-year low, which could aid the Fed's fight
against inflation.
The services industry accounts for more than two-thirds of the U.S.
economy.
"The index sends another signal that demand is cooling and that the
cumulative tightening is working through the economy, giving room to
the Fed to pause in June to assess conditions further," Saxo Markets
strategists said in a note to clients.
Data on Friday showed U.S. non-farm payrolls rose by 339,000 in May,
but a surge in the unemployment rate to a seven-month high of 3.7%
suggested an easing in labour market conditions.
"The tactical risk for equity investors in the very near term is
that the Fed indeed skips a meeting and raises rates in July and not
June," said Gary Dugan, CIO of Dalma Capital.
In oil markets, prices gave up most gains from the previous session
after the world's top exporter, Saudi Arabia, said it would further
cut output. Brent and U.S. Crude dropped about 2% to $75.17 and
$70.58, respectively.
In currency markets, the dollar index, which measures the greenback
against six major peers, was flat at 104.01, while the euro rose
0.12% to $1.0725.
The yen weakened 0.10% to 139.44 per dollar, while sterling fetched
$1.2410, down 0.2% on the day.
In cryptocurrencies, bitcoin was last at $25,721, having slid over
5% overnight after the U.S. securities regulator sued crypto
exchange Binance, in another blow to the industry.
(Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe and Mark
Potter)
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