Global Markets – Global stocks pause near five-month highs, caveat


Graphic: Global Asset Performance


Graph: World Forex Rates

By Dara Ranasinghe

LONDON (Reuters) – Global stocks stalled near five-month highs on Wednesday, as signs that central banks may need to keep raising interest rates for longer tempered the recent wave of optimism that strong monetary tightening among major central banks is almost certain. complete. .

The Australian dollar rose more than 0.7% to its highest level in more than five months after data showing inflation rose to a 33-year high of 7.8% in the fourth quarter fueled the case for another rate hike from the Reserve Bank of Australia next month. .

The Bank of Canada is widely expected to raise interest rates again later on Wednesday, with recent strong data supporting expectations for another move.

Trade in European equities was subdued with the broad Euro Stoxx 600 down 0.3%. US stock futures pointed to a weak open on Wall Street.

Globally, stocks have posted strong gains this year after crashing in 2022, amid expectations that inflation has peaked and that higher US interest rates will wane. China’s dismantling of COVID controls and reopening of its borders has boosted investor sentiment.

The MSCI world stock index, which has gained more than 6% this month, was broadly flat near a five-month high on Wednesday.

“Our view is that the move in risky assets is overdone,” said Jay Miller, chief market strategist at Zurich Insurance Group.

“Overall, the problem we have is that economic conditions are getting worse and the data we’re looking at points in that direction.”

In Asia, MSCI’s broadest index of Asia-Pacific stocks outside Japan hit a seven-month high. Trading volume fell as the Chinese and Taiwanese markets remain closed for the Lunar New Year holidays.

Shares in Microsoft gave up most of the 4% gain recorded in after-hours trading. Better-than-expected results for the tech giant showed some strength in the face of a weak economy, but weak revenue growth points to tough times for the sector.

Microsoft said on Wednesday that it is investigating a networking issue that affected multiple services.

The rise of the Australian dollar

In the currency markets, the Australian dollar rose to $0.7123 after the latest inflation data. The Australian currency is up nearly 2% this week and is poised for its biggest weekly jump in more than two months.

Investors have narrowed the odds of the RBA raising its cash rate by a quarter point to 3.35% when it meets on February 7th. Previously, some analysts thought there was a chance the RBA would stop its tightening campaign.

“The RBA is raising interest rates by 25 basis points at the meeting, and we don’t think that will change,” ING analysts said in a note.

The euro settled at around $1.0887 and held below its highest level in nine months.

Data showing German business sentiment improving in January does not appear to be reason enough to push the single currency higher for the time being.

Germany’s Ifo institute said its business climate index rose to 90.2, in line with the consensus according to a Reuters poll of analysts and up from 88.6 in December.

The New Zealand dollar fell after New Zealand reported annualized inflation of 7.2% in the fourth quarter, below the central bank’s forecast of 7.5%.

Oil prices rose, with Brent crude futures rising 0.4% at $86.46 a barrel after falling 2.3% in the previous session. US West Texas Intermediate (WTI) crude rose 0.3% to $80.36, after falling 1.8% on Tuesday.

Gold prices fell 0.5% to $1,928 an ounce, from a nine-month high touched in the previous session.

(Reporting by Dara Ranasinghe; Additional reporting by Anshuman Daga in Singapore; Editing by Mark Potter)

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