LDN - Business

Stocks stagnant, dollar firm ahead of Fed

[January 31, 2024] By Tom Wilson

LONDON (Reuters) -World shares trod water on Wednesday as investors waited for clues on when the U.S. Federal Reserve may start to cut interest rates, while the dollar was heading for its biggest monthly gain since September.

The pan-European STOXX 600 index was last up 0.1%, boosted by robust corporate updates and on track for a sixth straight session of gains and a monthly rise of 1.5%.

Financial services shares added 0.6%, with Spanish lender Santander up 2.5% after reporting a record-high profit for the last quarter of 2023, beating forecasts.

Shares globally though registered scant progress ahead of the Fed decision. The MSCI world equity index, which tracks shares in 47 countries, remained flat, just below a recent one-year high.

Fed policymakers have signalled they will not yet cut interest rates, with economists predicting a delay until June given strength in household spending and uncertainty over the economic outlook.

Investors are therefore focused on any comments from Fed Chair Jerome Powell, including a potential further turn in his once-hawkish stance or hints on how soon the central bank could begin easing rates.

Interest rate futures price a roughly 43% chance of a Fed rate cut in March, down from 73% at the start of the year.

"We could see the central bank look to put a pin in the idea that a March rate cut is coming," Michael Hewson, chief markets strategist at CMC Markets, said in a note.

Wall Street was set for losses, however.

Nasdaq futures fell 1.2%, while S&P 500 futures lost 0.5% ahead of earnings reports from major tech firms.

The outsized weighting of so-called Magnificent Seven stocks in the S&P 500 is under renewed focus from investors, even as their collective strength pushes U.S. equities to record highs.

The dollar has gained 2.2% against a basket of major currencies this month, its biggest rise since September, as markets dialled back expectations on the speed and scale of rate cuts. It was last up 0.1% at 103.49.

Euro zone government bond yields meanwhile dropped after mixed economic data from Germany and France and dovish comments from European Central Bank officials.

Germany's 10-year government bond yield, the benchmark for the euro area, fell 5 basis points to 2.23%.

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People walk past screens displaying the Hang Seng stock index and stock prices outside the Exchange Square in Hong Kong, China January 23, 2024. REUTERS/Joyce Zhou/File Photo

FED WATCH

Other market moves were largely subdued as traders stayed on guard ahead of the Fed decision.

Earlier Chinese shares lost 0.9% after a survey showed manufacturing activity shrinking in January for a fourth month.

That dragged MSCI's broadest index of Asia-Pacific shares outside Japan down 0.4%, and it was heading for a monthly loss of roughly 5%, snapping a two-month winning streak.

The loss has in part been due to a steep selloff in Chinese stocks this month that prompted Beijing to step in to put a floor under its sliding market.

"There's a patently clear sign in my mind (that) they don't want the market to go down any more," Mark Matthews, Bank Julius Baer's head of research for Asia, said at an outlook briefing in Singapore on Tuesday.

China's blue-chip index, which earlier this month hit its lowest since 2019, lost 0.9% and is down roughly 6% for January, marking its sixth straight monthly decline - a record losing streak.

In Japan though, the Nikkei ended the month with a more than 8% gain, its best January performance since 1998.

The yen was steady against the dollar at 147.82, on course for a monthly decline of 4.5%, which would be its largest monthly drop since June 2022.

Oil prices were pressured by lacklustre economic activity in leading crude importer China, though a first monthly gain since September was in sight as flaring tensions in the Middle East heightened supply concerns.[O/R]

Brent futures slipped 83 cents to $82.04 a barrel. U.S. crude lost 80 cents to $77.01.

(Reporting by Tom Wilson in London; additional reporting by Rae Wee in Singapore; Editing by Edmund Klamann, Shri Navaratnam, Tomasz Janowski and Jan Harvey)

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