Despite the news that the U.S. air force had shot down another airborne object causing some geopolitical worry, global markets inched up and the dollar held steady on Monday ahead of U.S. inflation data that might determine the outlook for global interest rates.
The fourth object to be shot down this month was sighted near the Canadian border, but officials would not comment on whether it resembled the huge white Chinese balloon that was also shot down earlier in February.
The expectation of an inflation and rate peak, as well as signs of sustained U.S. growth that imply the economy may be headed for a gentle landing, have all helped stocks rise in the first weeks of 2023.
This optimism, however, hit a brick block the week before last when the Federal Reserve reaffirmed that the fight against inflation is far from finished and the January employment report showed a scorchingly hot labor market.
After rising by almost 10% in the first five weeks of the year, the MSCI All-World index (.MIWD00000PUS) decreased by nearly 1.5% last week. It ended the day flat at 647.09 points.
This week’s U.S. consumer price and retail sales statistics could serve as major market movers, with much riding on whether inflation slowed down in January.
According to media predictions, consumer prices will increase by 0.4% for the month overall, while sales will increase by 1.6%.
Given a reanalysis of seasonal components published this week, which showed upward adjustments to CPI in December and November, risks could be to the upside. As a result, core inflation increased from 3.1% to 4.3% on a three-month annualized basis.
A larger CPI bias may be caused by changes to the weightings for housing expenses and used car prices.
With this week’s CPI and retail sales expected to indicate that inflation has picked up in month-over-month terms and that U.S. consumer spending is proving to be somewhat more resilient, Marc Ostwald, chief global economist at ADM Investor Services, said that markets have once again been caught up in their over-enthusiasm for a Fed and other central bank rate pivots.
Gains in industrial and defense stocks drove the STOXX 600 (.STOXX) up 0.7% in Europe, where equities increased. The index decreased by about 1% last week.
Futures for U.S. stock indexes increased by 0.3% to 0.6%.
With rates now expected to peak at approximately 5.15% with the reduction coming later and slower, the Federal Reserve’s future tightening has already been dramatically elevated in the eyes of the markets.
Additionally, a complete schedule of Fed representatives will be speaking this week to offer their thoughts on the data.
After increasing 21 basis points last week, 10-year Treasury yields are at a five-week high of 3.75%, while two-year yields have reached 4.51%.
The euro, which lost 1.1% of its value last week, increased by 0.2% to $1.0695 after hitting a five-week low in the very first minutes of trading on Monday.
On the news that the Japanese government was likely to name scholar Kazuo Ueda as the next governor of the Bank of Japan, the dollar also gained ground versus the yen.
The unexpected information generated rumors that the BOJ’s ultra-lax policies might soon stop, but Ueda later stated that it was appropriate to retain the existing position.
The dollar recently increased by over 0.7% to 132.37 yen after recovering from a low of 129.80 on Friday.
The dollar’s strength and rising rates hurt gold, which dropped 0.2% to $1,861.70 per ounce from its record of $1,959 in early February.
Oil prices experienced new selling after surging on Friday after Russia announced it will reduce its daily output by 5% in March as a result of price limitations placed by the West on Russian oil and oil-related products.
Both U.S. futures and Brent crude, which stood at $86.36 per barrel on the day, were unchanged.