Stocks struggle, dollar dominant ahead of central bank binge

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  • https://tmsnrt.rs/2zpUAr4
  • S&P 500 futures slide, Nikkei futures fall
  • Fed tops central bank meetings
  • Market tilts towards 75 bps from Fed, PBOC eases
  • Dollar firm near multi-year highs

SYDNEY/LONDON, Sept 19 (Reuters) – Shares fell and the dollar strengthened on Monday as investors braced for a busy week of central bank meetings that will see borrowing costs rise at the global scale, with the possibility of an increase in size in the United States.

Markets are fully priced for a 75 basis point interest rate hike from the Federal Reserve, with futures showing a 20% chance of a full percentage point.

They also indicate a real chance that rates will hit 4.5% as the Fed is forced to tip the economy into recession to get inflation under control. Read more

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“Asset performance during this cycle of Fed tightening is very different from the norm for other episodes of rate hikes,” said David Chao, global market strategist at Invesco.

“Usually the Fed tightens when the economy is strong and most assets are doing well. However, most assets have suffered this time around, perhaps due to surging inflation and a abrupt policy change.”

Trading was cleared on Monday with UK markets closed for Queen Elizabeth II’s state funeral, but the European STOXX index (.STOXX) slipped 0.5% to its lowest level in two months, led by technology stocks. (.SX8P) Read more

MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS)fell 0.6%, continuing to set new two-year lows, also hurt by falling tech stocks, (.HSTECH)

S&P 500 futures fell 0.67%, while Nasdaq futures fell 0.83%.

In addition to the specific rate hike, investors will be watching Fed members’ rate forecasts, which are likely to be hawkish, putting the funds rate at 4-4.25% by the end of this year, and even higher the next. year.

That risk saw two-year Treasury yields jump 30 basis points last week to the highest since 2007 at 3.92%, making stocks more expensive by comparison and dragging the S&P 500 down by nearly 5% for the week.

Treasuries aren’t trading yet as Japan and Britain have public holidays, but eurozone borrowing costs have edged higher as short-term yields aren’t far from their highs multi-annual.

MARKET DISTRIBUTION

It is not just in the United States that interest rate hikes are expected. Most of the banks gathered this week – from Switzerland to South Africa – are expected to rise, with markets split on whether the Bank of England will go 50 or 75 basis points. Read more

China’s central bank, however, went its own way and cut the repo rate by 10 basis points to support its struggling economy, leaving the blue chips (.CSI300) up 0.1%.

The other exception is the Bank of Japan, which has shown no sign of abandoning its ultra-loose yield curve policy despite the drastic fall in the yen. Read more

The dollar rose 0.34 to 143.45 yen on Monday, having retreated from the recent 24-year high of 144.99 amid increasingly strident warnings of intervention from Japanese policymakers.

The euro was down 0.36% at $0.9978 and the pound slid 0.3% to $1.1390 ​​just off Friday’s 37-year lows, with traders keeping an eye on the mini -new British Finance Minister Kwasi Kwarteng’s emergency budget, due on Friday.

The dollar index, which measures the currency against six peers, was 0.4% stronger at 110.03.

“We expect the USD to maintain its uptrend this week to hit a new cyclical high above 110.8 points on the deteriorating outlook for the global economy,” analysts said. from the ABC in a footnote.

The rise in the dollar and yields was a drag on gold, which fell 0.55% to $1,666 an ounce after hitting lows not seen since April 2020 last week.

Oil prices fell, under pressure from the stronger dollar. Brent crude fell 1.3% to $90.18. U.S. crude fell 1.3% to $83.97.

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Reporting by Wayne Cole in Sydney and Alun John in London; Editing by Sam Holmes, Christian Schmollinger and Ed Osmond

Our standards: The Thomson Reuters Trust Principles.

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