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- S&P 500 futures fall, Nikkei futures down
- The Fed leads the pack at central bank meetings
- Market tilts towards 75 bp Fed, PBOC relaxes
- Dollar firm near multi-year highs
SYDNEY/LONDON, Sept 19 (Reuters) – Shares fell and the dollar firmed on Monday as investors braced for a packed week of central bank meetings that will see borrowing costs rise globally, with the possibility of a large increase in the United States.
Markets are fully priced in for a 75 basis point increase in interest rates from the Federal Reserve, with futures showing a 20% chance of a full percentage point increase.
They also indicate a real possibility that rates could reach 4.5% as the Fed is forced to plunge the economy into recession to control inflation. Read more
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“Asset performance during this Fed tightening cycle is very different from the norm for other rate hike episodes,” said David Chao, global market strategist at Invesco.
“Typically, the Fed tightens when the economy is booming and most assets are doing well. However, most assets have suffered this time, perhaps due to rising inflation and the sharp shift in policy “.
Trading was light on Monday with British markets closed for Queen Elizabeth II’s state funeral, but Europe’s STOXX index (.STOXX) fell 0.5% to its lowest level in two months, dragged down by technology stocks. (.SX8P) read more
MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) fell 0.6%, continuing to hit fresh two-year lows, also weighed down 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, placing the funds rate between 4% and 4.25% by the end this year, and even higher next year. course
That risk sent two-year Treasury yields up 30 basis points last week alone to hit a high since 2007 at 3.92%, making stocks look more expensive by comparison and dragging the S&P 500 by nearly a 5% during the week.
Treasuries are still not trading as both Japan and Britain have public holidays, but eurozone borrowing costs rose slightly, with short-term yields not far from multi-year highs.
MARKETS DIVISION
Interest rate hikes are expected not only in the US. Most banks meeting this week – from Switzerland to South Africa – are expected to hike, with markets divided over whether the Bank of England will hike by 50 or 75 basis points. Read more
China’s central bank, however, went its own way and cut a repo rate by 10 basis points to support its struggling economy, leaving blue chips (.CSI300) at 0.1%.
The other exception is the Bank of Japan, which has shown no sign of abandoning its very easy yield curve policy despite the sharp fall in the yen. Read more
The dollar rose 0.34 to 143.45 yen on Monday, having pulled back from a 24-year high of 144.99 on increasingly strident warnings of intervention from Japanese policymakers.
The euro fell 0.36% to $0.9978 and sterling fell 0.3% to $1.1390 just off Friday’s 37-year lows, with traders eyeing the mini-budget of emergency by the new British Finance Minister Kwasi Kwarteng, expected on Friday.
The dollar index, which measures the currency against six peers, was 0.4% stronger at 110.03.
“We expect the USD to continue trending higher this week to a new cyclical high above 110.8 points due to the deteriorating global economic outlook,” CBA analysts said in a note.
The rise in the dollar and yields has been a drag on gold, which was down 0.55% at $1,666 an ounce after hitting lows not seen since April 2020 last week.
Oil prices fell, pressured by strong dollar Brent crude fell 1.3% to $90.18. US 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
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