Stock indices consolidate January’s heavy losses; Eurozone bond yields spike
January has been a rough month for global stock markets as more central banks prioritized their price objectives amid the inflation storm, with the Fed finally taking investors’ side and hinting at a faster pace of rate increases this year. Of course, US earnings releases have not demonstrated any panic so far despite companies keep facing supply constraints, but the reversal of easy-money policies in the near future is enough to frustrate investors, especially those who have a large exposure in overvalued tech stocks, and signal that the pandemic record gains will probably remain in the past.
US futures were pointing to a mixed open during the time of writing, with the S&P 500 and the Dow Jones set to dip back in the negative territory after Friday’s soft upturn, while the tech-heavy Nasdaq 100, which is down by 12% this month, facing its worst sell-off since 2008, could start the session mildly higher.
Meanwhile in Europe, the pan-European STOXX 600 staged a modest rebound on the back of rising tech and industrial shares as the German 10-year bond yields spiked back above zero to unlock an almost three-year high. Other Eurozone bond yields followed suit. On the other hand, declines in basic materials and healthcare stocks are offsetting any upside moves in the UK’s FTSE 100.
Aussie the best performer but wait for the RBA
Turning to FX markets, the risk-sensitive aussie was the best performer across the board followed by its New Zealand cousin, even though both are still pinned near their multi-year lows. The bullish reversal is probably supported by high expectations that the Reserve Bank of Australia (RBA) will terminate its bond buying program when it announces its policy decision on Tuesday at 03:30 GMT, while investors are also eagerly waiting to hear any plans for higher interest rates this year. The RBA governor Philip Lowe, however, has been somewhat conservative recently. Hence, he could still reject any rate increases, though investors will hear more from him when he delivers a detailed speech on Wednesday.
Australian monthly retail sales for December will be out on Tuesday as well a bit earlier at 00:30 GMT.
European currencies cannot get their feet after sharp sell-off
In other currencies, the euro could not capitulate much on stronger-than-expected preliminary German CPI figures and rising eurozone bond yields, ticking to an intra-day high of 1.1180 against the dollar before inching lower again. Earlier in the day, GDP growth figures out of the bloc marked a quarterly slowdown in Q4, adding more evidence that the eurozone’s economic expansion is still fragile and a tighter monetary policy may come with some delay. That said, the slight improvement in risk-on appetite, helped the euro steal some extra ground against the yen and the Swiss franc.
Likewise, pound/dollar is struggling to find buyers today, holding around its 50-day simple moving average at 1.3020 as political noises in Downing Street continue.
Note that the ECB and BoE are the next on the list to announce their policy decisions on Wednesday and Thursday, respectively.
The weakness in European currencies and stable bond yields helped the dollar index to remain elevated near Friday’s four-month high despite today’s soft pullback.
Gold near recent lows; oil neutral
In commodities, gold remained a victim of the dollar, barely moving around $1,792 even if military odds between Ukraine and Russia feed talks of war.
WTI oil crude futures are on a tight range marginally below seven-year highs for the third consecutive day, technically signaling a potential price reversal.
