Stocks steady as dollar dithers ahead of US data
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[November 28, 2023] By
Amanda Cooper
LONDON (Reuters) -Global stocks steadied on Tuesday, underpinned by the
conviction among investors that the Federal Reserve will not raise rates
again, which kept the dollar at three-month lows and supported gold
above $2,000 an ounce.
Traders will have to weigh up data this week on how the U.S. economy
fared in the third quarter, along with a key read of consumer inflation
and spending - both of which could be instrumental in setting
expectations for the timing of the first rate cut.
The MSCI All-World index was last steady on the day, still heading for
its best month in three years, up 8.5% in November. The dollar, which
has lost 3.2% in value against a basket of currencies this month, was up
0.1% around its lowest in three months.
European stocks fell 0.5%, driven by losses in pharma and consumer goods
companies, while U.S. stock futures were little changed.
The spotlight this week will be on Thursday's U.S. October personal
consumption expenditures report (PCE), which includes core PCE, said to
be the Fed's preferred measure of inflation, and euro zone consumer
inflation figures for further clarity on where prices and monetary
policy are headed.
Consumer inflation, as measured by the consumer price index (CPI), is
running at a rate of 3.2%, having dropped from September's 3.7%, and
core PCE, at 3.7% in September, is unlikely to buck that trend. What
might give traders more pause for thought is the spending component of
the PCE report, according to Lombard Odier economist Sami Chaar.
"That is important because, basically, the market is totally anchored in
that 'soft landing' type scenario, where disinflation continues, with
slow growth, allowing the Fed to cut four times next year starting
March. That is a very complacent scenario," he said.
"Everything has to go great and in the Fed’s direction for this scenario
to actually materialise and play out. So the spending data is where we
get some new information," he said.
The resilience of the U.S. consumer, thanks in part to a strong labour
market, has helped the United States outperform most other developed
economies in the past year.
Futures markets show traders expect U.S. rates to stay where they are at
5.25-5.50%, with a small chance of a first cut by March and at least
three subsequent cuts that would take rates closer to 4.25-4.5% by the
end of 2024.
Gold traders will also keep a close eye on the U.S. inflation numbers.
The price is at six-month highs above $2,000, driven by a weaker dollar
and lower Treasury yields.
Policymakers at a number of central banks have reiterated their
commitment to keeping interest rates high enough to bring down inflation
towards their targets.
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People walk through the lobby of the London Stock Exchange in
London, Britain August 25, 2015. REUTERS/Suzanne Plunkett/File photo
Euro zone inflation data this week will keep that debate alive in
European markets.
NO LET-UP IN INFLATION FIGHT
On Monday, ECB President Christine Lagarde said the central bank's
fight to contain price growth was not over, citing persistently
strong wage growth and an uncertain outlook even as inflation
pressures in euro zone ease.
Fed Chair Jerome Powell also speaks on Friday and his words will be
scrutinised by traders to gauge where rates may head.
Benchmark 10-year Treasury yields, which have dropped by the most in
a month since March in November, were unchanged at 4.392%, holding
onto price gains after data on Monday showed new home sales fell
more than expected in October as higher mortgage rates reduced
affordability.
Shorter-dated yields were a touch higher, following auctions on
Monday for over $100 billion in new supply of two- and five-year
notes.
In currencies, the Japanese yen, which often tracks U.S. yields,
strengthened, leaving the dollar 0.1% down at 148.58 and putting the
Nikkei under modest pressure, although the index is around its
highest since the 1990s, up 8% this month.
The euro was flat at $1.09505.
With the dollar trading a touch softer on the day, the oil price
rose, with Brent crude up 0.7% at $80.57 a barrel, while U.S. crude
futures rose 0.9% to $75.49.
Volatility in the oil market has been stirred up this week by this
week's meeting of the OPEC+ group of major exporters to discuss
production targets.
"The Saudis and OPEC+ have made a habit of surprising markets in
recent years when it comes to their meetings. However, with
aggressive cuts already in place, it does leave one wondering the
degree to which the group could surprise the market with
deeper-than-expected cuts," ING strategist Warren Patterson said.
Meanwhile, gold was up 0.1% at $2,015 an ounce.
(Additional reporting by Ankur Banerjee; Editing by Sam Holmes, Kim
Coghill and Ed Osmond)
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