Stocks steady, heavy data week keeps investors timid
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[October 24, 2023] By
Amanda Cooper
LONDON (Reuters) - Global stocks steadied on Tuesday as a flicker of
investor risk appetite lifted equities and commodities, although trading
was cautious given the war in the Middle East and looming make-or-break
data for the outlook for U.S. interest rates.
Oil prices recovered some of the previous day's losses as markets
worried that the Israel-Hamas war could escalate into a wider conflict
in the oil-exporting region.
Bitcoin, which on Monday staged its biggest one-day rally in a year,
with a gain of 10.2%, was up another 3%.
The MSCI All-World index rose 0.1%, marking its first daily rise since
Oct. 17, while an index of Asia-Pacific shares outside Japan edged above
a one-year low.
Monthly surveys of business activity showed a decline in the euro zone
and the UK in early October, ahead of a separate report due out later
for the United States.
"The only real growth that is out there is in the United States,"
TraderX strategist Michael Brown said, flagging the monthly U.S.
purchasing manager index (PMI) survey due later.
"I would expect that is going to really reinforce that message. The
risks facing the euro zone were pretty significant already, before
everything kicked off in the Middle East, but now we are potentially
looking at a second consecutive winter where the euro zone is having to
grapple with an energy shock," he said.
The STOXX 600 fell 0.2%, led by declines in banking shares such as
Barclays, which dropped almost 9% at one point after the company hinted
at major cost cutting this year as pressure is growing on its margins.
Investors do not expect the European Central Bank to raise interest
rates when it meets this week, but are still prepared for borrowing
costs to remain high for a long time.
"The looming spectre of inflation grows even more imposing, especially
considering the recent sharp ascent in oil prices," said Dalma Capital
Chief Investment Officer Gary Dugan.
"If oil prices persist at this level throughout the rest of 2023 and
into 2024, this could potentially inject another bout of inflation into
the global economy."
THE 5% CLUB
Global bond yields have yawned higher in recent weeks, in part because
of a growing belief that central banks will have no room to cut interest
rates until well into 2024.
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Staff lower Chinese national flag in front of screens showing the
index and stock prices outside Exchange Square, in Hong Kong, China,
August 18, 2023. REUTERS/Tyrone Siu/File Photo
The run-up in yields on the 10-year Treasury note to 5% on Monday is
a reflection of this belief. The 10-year note was last yielding
4.831%, unchanged on the day.
BlackRock Chief Executive Larry Fink said he believed U.S. rates
would stay higher for longer, given the amount of fiscal stimulus
entering an already resilient economy, and robust wage growth.
"I do believe the Federal Reserve will have to raise rates higher,
which probably will mean that by 2025 we may have a soft landing, we
may have hard landing. That is the only way that I see that we’ll be
arresting this. But I don’t expect it any time soon," Fink said at a
gathering of financial leaders in Riyadh on Tuesday.
Investor attention will be split this week between the earnings of
high-profile companies, such as Microsoft, Facebook parent Meta
Platforms and Amazon, as well as a slew of economic data ahead of
the Fed's meeting from Oct. 31 to Nov. 1.
Third-quarter gross domestic product on Thursday, along with the
Personal Consumption Expenditures (PCE) report, the U.S. central
bank's preferred inflation gauge, on Friday, could help shape
medium-term expectations for U.S. rates.
In the currency market, the dollar held steady against a basket of
currencies, after Monday's 0.5% drop.
The yen edged up against the dollar, but was not too far away from
150 per dollar - a level markets believe could prompt Japanese
authorities to intervene to prop up the currency. Against the yen,
the dollar was down 0.1% at 149.51.
In cryptocurrencies, bitcoin rose to 18-month highs, as speculation
about the possibility of an exchange-traded fund drove enthusiasm
and prompted short-sellers to exit positions.
The world's biggest cryptocurrency traded as high as $35,198, before
easing to $34,151, up 3.3% on the day.
In commodities, U.S. West Texas Intermediate crude futures were flat
at $85.48 a barrel, while Brent was up 0.1% at $89.88 and copper
rose 0.1% to $7,977 a tonne.
(Additional reporting by Ankur Banerjee in Singapore; Editing by
Jamie Freed, Clarence Fernandez and Mike Harrison)
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