Global Markets Take a Hit as Fed Rate Cut Hopes Fade
The European stock market and US equity futures plummeted on Monday, as investors scaled back their expectations of Federal Reserve interest-rate cuts following Friday’s robust payroll data. Global bond yields surged, while the dollar strengthened, reaching its highest level in over two years.
Energy Stocks Buck the Trend
Energy stocks were the exception to the rule, outperforming the market as oil prices climbed to a four-month high. The surge in oil prices was driven by fresh US sanctions on Russia, which threaten to disrupt supplies.
Dollar Strengthens Amid Rate Cut Uncertainty
The dollar’s strength was fueled by expectations that interest rates will remain higher for longer than previously thought. Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB, noted that the market is shifting its focus away from rate cuts, citing uncertainty surrounding President-elect Donald Trump’s policies.
Key Economic Data Ahead
Investors are now turning their attention to key economic data releases, including US inflation figures due on Wednesday, producer prices on Tuesday, and jobless claims on Thursday. The next few days will provide crucial insights into the state of the US economy and the potential direction of interest rates.
Bond Markets Extend Decline
The decline in global bond markets extended into Monday, with German debt falling for an eighth consecutive day, its longest streak since December 2022. The 30-year Treasury yield rose above 5% for the first time in over a year, following Friday’s payrolls data.
Pound Slumps to Lowest Level Since November
The British pound slid to its weakest level since November, falling 0.7% to $1.2124, as investors grew increasingly concerned about the UK’s slowing economy and growing twin deficits.
Brent Crude Surges Above $81 a Barrel
Brent crude oil prices surged above $81 a barrel, driven by the US’s most aggressive sanctions yet on Russia’s oil industry. The move is expected to disrupt supplies and drive prices even higher.
Asian Stocks Fall for Fourth Day
Asian stocks fell for a fourth consecutive day, with an MSCI Inc. gauge of the region’s stocks dropping as much as 1.1%. Chinese shares extended losses, despite local data showing record exports last year.
China Ramps Up Support for Yuan
The People’s Bank of China and other regulators announced plans to strengthen their management of the foreign-exchange market, following the yuan’s drop to a record low against the dollar in offshore trading. Beijing vowed to maintain a stable currency at reasonable levels.
Key Events This Week
This week will be packed with key economic events, including India’s CPI data on Monday, ECB Chief Economist Philip Lane’s speech in Hong Kong, and US CPI data on Wednesday. Investors will also be watching earnings reports from Bank of America and Morgan Stanley on Thursday.
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