Fed Eyed As Global Stocks Gain, Yields Dip After US Data Revealed

A gauge of global stocks advanced yesterday as it closed out a strong month while US Treasury yields fell as investors assessed economic data and earnings reports ahead of a run of central bank policy announcements.

On Wall Street, US stocks rallied and closed higher, reversing declines in equity futures after data showed labour cost growth in the fourth quarter was the smallest in a year, at 1.0 per cent, even in a tight labour market. Other data showed consumer confidence eased in January, as inflation expectations for the next 12 months climbed to 6.8 per cent from 6.6 per cent last month.

The Federal Reserve is widely expected to raise interest rates by 25 basis points (bps) at the conclusion of its two-day policy meeting Today. Investors will closely monitor comments from Fed Chair Jerome Powell following the announcement for clues on the path of monetary policy.

“Especially ahead of a Fed press conference, something like this equity market rally is kind of explicitly against what they want, and they have been pretty clear the market rallying on what they expect the Fed to do is counter-productive,” said Ross Mayfield, investment strategist at Baird in Louisville, Kentucky.

“We do feel like we’ve gotten a bit ahead of ourselves here even if we are closer to the end of the Fed hiking cycle than the beginning.”

The Dow Jones Industrial Average rose 368.95 points, or 1.09 per cent, to 34,086.04 , the S&P 500 gained 58.83 points, or 1.46 per cent, to 4,076.6, and the Nasdaq Composite .IXIC added 190.74 points, or 1.67 per cent, to 11,584.55 .

The S&P 500 closed up 6.2 per cent for the month, its first January gain since 2019, while the Nasdaq surged 10.7 per cent for its biggest percentage gain for the month of January since 2001.

Interest rate announcements from the Bank of England and the European Central Bank are scheduled for tomorrow, with both seen as likely to hike rates by 50 basis points, Reuters cited.

Markets will also grapple with a host of US economic data this week, culminating in Friday’s payrolls report for January. Investors see signs of weakening in the labour market as a key factor in bringing down high inflation. Other data this week include gauges of the manufacturing and services sectors.

In addition, more than 100 S&P 500 companies, including market heavyweights Apple Inc, Amazon.com Inc and Google parent Alphabet, are scheduled to report results this week.

Despite the strong equity rally, Caterpillar and McDonald’s both lost ground yesterday following their quarterly results. However, Exxon Mobil rose after posting a US$56 billion (RM238.8 billion) net profit for 2022.

European shares retreated ahead of the central bank meetings to end the month on a down note, but still notched their biggest January percentage gain since 2015. Economic data for the euro zone showed slight growth for the fourth quarter, but further weakness is expected this year.

The pan-European STOXX 600 index lost 0.26 per cent, and MSCI’s gauge of stocks across the globe gained 0.72 per cent. MSCI’s index was on pace for its biggest January percentage gain since 2019.

Benchmark US 10-year notes were down 3.5 basis points to 3.516 per cent in the wake of the data, after hitting a two-week high of 3.574 per cent on Monday.

In currencies, the US dollar index, poised for a fourth month of declines, fell 0.176 per cent, with the euro up 0.22 per cent to US$1.0868. Oil prices recovered from earlier lows, as US crude settled up 1.2 per cent at US$78.87 per barrel and Brent settled at US$84.49, down 0.48 per cent on the day.

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