© Reuters. FILE PHOTO: People wearing protective masks, amid the coronavirus disease (COVID-19) outbreak, are reflected on an electronic board displaying Japan’s stock prices outside a brokerage in Tokyo, Japan, October 5, 2021. REUTERS/Kim Kyung-Hoon
By Herbert Lash and Danilo Masoni
NEW YORK/MILAN (Reuters) – Global equity markets rose in thin trade on Monday at the start of a big week for central bank meetings, helped by bets of fiscal stimulus in Japan and undeterred by concerns of future interest rate hikes that have tempered bonds.
Stocks on Wall Street hit record highs, led by a surging energy sector, before the benchmark retreated slightly. European stocks also hit record highs following upbeat earnings reports, while a surge in banking shares buoyed euro zone markets.
The pan-European gained 0.6%, surpassing its previous all-time high of mid-August, as the global mood was supported by Japan’s post-election boost and stabilizing coal prices in China.
MSCI’s world equities index also rose 0.16% while the rose 0.00%, the S&P 500 slid 0.12% and the advanced 0.17%.
rose 2.6% after Prime Minister Fumio Kishida’s Liberal Democratic Party won an unexpected comfortable victory, raising hopes for political stability and stimulus in the term ahead.
The dollar drifted lower after posting its biggest daily rise in more than four months last Friday as hedge funds pared bearish bets before the Federal Reserve’s policy meeting this week.
Markets are calm before the storm of three central bank meetings this week, said Marc Chandler, chief market strategist at Bannockburn Global Forex. The Reserve Bank of Australia meets Tuesday, the Fed on Wednesday and the Bank of England Thursday.
“Markets are worried about a more hawkish type of tapering,” Chandler said. “The Fed could drop its characterization of inflation as being transitory, and the second thing is the markets are saying as soon as the Fed gets done with its tapering, they’re going hike rates.”
Fed Chair Jerome Powell has said tapering would be over by mid-year 2022, which has been pegged as June, but that could also mean May, Chandler said.
“The market has to be on guard for a more aggressive, hawkish view from the Fed,” he said, which means market participants won’t be anxious about taking profits on long-dollar positions.
The , which tracks the greenback versus a basket of six currencies, fell 0.19% at 94.017.
The euro was up 0.16% at $1.1578, while the yen traded up 0.18% at $114.2000.
U.S. Treasury yields rose and German bond yieldsstill edged higher as investors held on to their bets for tworate hikes from the European Central Bank next year.
ECB President Christine Lagarde disappointed expectations of a firm pushback against the recent market pricing of two ECB rate hikes next year that at are at odds with the bank’s inflation projections.
The 10-year U.S. Treasury note rose 2.8 basis points to yield 1.5856 percent, while German 10-year yields slid 0.1 basis points to yield -0.095 percent.
“We may come out of (the) week past peak yield volatility, or at least, past peak rate hike fever,” said NatWest Markets strategist John Briggs. “A lot of the things that went parabolic and took market rate hike expectations to a boil are at least looking like they are calming a bit.”
Commodities stabilised with a further drop in Chinese coal prices pushing them 50% below last month’s record high. Oil prices reversed earlier declines with futures last up 1% at $84.56 per barrel, helped by expectations of strong demand. [O/R]
The Fed is the highlight of a week full of central bank meetings that are likely to move markets, with policy adjustments possible at the Bank of England and Reserve Bank of Australia.
Swaps pricing points to a better-than-even chance of the BoE hiking on Thursday, while the RBA will likely make some sort of guidance adjustment after again declining to defend its yield target on Monday.
gold prices rose 0.55% to $1,792.58 an ounce. was up 0.31% at $61,552.31.
Morgan Stanley: bear market rally to continue
One of Wall Street’s best-known bears, Michael Wilson, thinks the S&P 500 will rise another 7% before turning down, so the bear market rally will continue for now, writes Market Watch.
After the Dow Jones, S&P 500 and Nasdaq Composite joined their strongest weekly gains since at least May last Friday, Wilson, who is chief strategist and head of U.S. equity markets at Morgan Stanley (NYSE:MS), told clients that there could be another 5% to 7% before the downward trajectory of U.S. stocks resumes during the latest bear market recovery.
Wilson has held a bearish view of the stock market for about 2 years and correctly predicted a sell-off this year.
Wilson explained in a research note sent out to clients on Monday that a pullback in the 38-50% drop in the stock market this year “would not seem like something unnatural, not consistent with the previous bear market rally.”
While growth concerns have triggered a sell-off in commodities and lowered inflation expectations, the fact that the U.S. economy is already slowing and heading toward recession means that any market rally is likely to be short-lived, and U.S. stocks are likely to eventually fall.
Wilson mentioned in the note that the bear market is not over yet, although it may appear otherwise in the next few weeks as the market takes the rate cut as a sign that the Fed can still manage a “soft landing” and prevent a meaningful revision to earnings forecasts.
U.S. stocks rose last week as investors now hope the slowing economy and falling commodity prices may inspire the Fed to raise interest rates less sharply. Federal funds futures, a derivative used by investors to bet on the pace of the Fed’s monetary policy changes, estimate with a high probability that the Fed will be forced to start cutting interest rates again as soon as next summer.
They also consider the lower peak in the federal funds rate: it will peak around 3.5% at the end of 2022 instead of 3.75% just a couple of weeks ago. Wilson also pointed out the drop in Treasury yields: the 10-year Treasury bond yield went from 3.230% to a low of 3.07% on Friday before rebonding again on Monday.
Wilson expects the S&P 500 index to fall to around 3,400 points if the U.S. Federal Reserve manages to get a “soft landing” for the economy — which Fed Chairman Jerome Powell said last week would be “a very difficult thing to do.”
Wilson expects that if the U.S. economy plunges into recession, the S&P 500 index will fall to around 3,000 points. In any case, Wilson believes that U.S. stocks are still highly valued because the risk premium — that is, the measure of compensation that investors receive for the extra risk of owning stocks instead of bonds — remains about 300 basis points higher than the 10-year Treasury bond yield, which is considered a “risk-free rate.”
Easing chip shortages to help Volkswagen in H2 – CEO
© Reuters. FILE PHOTO: Volkswagen logo is pictured at the 2022 New York International Auto Show, in Manhattan, New York City, U.S., April 13, 2022. REUTERS/Brendan McDermid/File Photo
BERLIN (Reuters) – Volkswagen (ETR:VOWG_p) sees a strong second half of 2022 and expects progress in catching up with rival Tesla (NASDAQ:TSLA) as easing chip shortages start to offset supply chain bottlenecks and rising costs, the carmaker’s CEO said on Tuesday.
“We are earning more than ever,” Chief Executive Herbert Diess said at a works meeting, adding Volkswagen is ramping up electric vehicle volumes in its biggest markets in Germany and China thanks to easing semiconductor shortages.
This should allow the carmaker to narrow the Volkswagen-Tesla gap this year and meet its goal of becoming market leader by 2025 if it seizes the moment while the U.S. electric car maker burns cash on large investments, the CEO said.
“Elon (Musk) has to ramp up two highly complex factories in Austin and Gruenheide at the same time – as well as expand production in Shanghai. That’s going to take strength out of him,” Diess said.
Reliance Chairman Mukesh Ambani steps down as director of telecom arm
© Reuters. FILE PHOTO: Mukesh Ambani, Chairman and Managing Director of Reliance Industries, arrives to address the company’s annual general meeting in Mumbai, India July 5, 2018. REUTERS/Francis Mascarenhas
BENGALURU (Reuters) – Reliance Industries Chairman Mukesh Ambani has stepped down as director of Reliance Jio Infocomm Ltd, the conglomerate’s telecom arm said on Tuesday.
Reliance Jio said https://refini.tv/3Nrs773 it has appointed Mukesh’s son and non-executive director Akash Ambani as the chairman of its board. Akash has been involved with the telecom unit since its launch in late 2016, where he started as a director.
India’s telecoms sector had been upended after the entry of Jio, which triggered a price war that forced some rivals out of the market and turned profits into losses.
Jio, which started out offering mobile teleservices, has been aggressively investing in services like internet broadband and forging ties with handset makers to launch low-cost smartphones and providing 5G services.
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