Most markets were trading in the red on Tuesday after several officials from the European Central Bank (ECB) warned attendees at Davos that it was too soon to expect interest rate cuts. “Speaking at the World Economic Forum on Monday, ECB policymaker Joachim Nagel emphasized that it was premature to discuss cuts given the persistently high inflation, while his Austrian counterpart, Robert Holzmann, advised markets against anticipating any rate cuts this year. Meanwhile, French central bank Governor Francois Villeroy de Galhau cautioned against declaring victory over inflation too soon, but indicated that the next move is likely to be an interest rate cut later this year,” reported Trading Economics.
The hawkish remarks from these central bankers caused markets in Europe, the US and in SA to trade down at 17h50 on Tuesday. Two US indices, barring the Nasdaq which traded flat, opened lower, while major EU indices the DAX, CAC40 and FTSE 100 closed down by 0.36%, 0.25% and 0.37% respectively.
The negative sentiment filtered through to the local market which closed down by nearly 1%, with the resource and industrial sectors facing the most pressure. The rand traded at R18.89/USD, R23.92/GBP and R20.57/EUR at 17h50.
Most Asian markets also lost steam, with Japan’s Nikkei losing 0.64% and Hong Kong’s Hang Seng dropping 2.16% after losses in the financial, technology and property sectors. “In China, state-owned banks are tightening curbs on funding to Russian clients after the US authorized secondary sanctions on foreign financial companies that support Moscow's war in Ukraine”, Bloomberg News said.
Gold traded lower at $2 041.35 an ounce at 17h55, after the US dollar and Treasury yields strengthened. “These moves came as investors scaled back bets on early interest rate cuts from the US Federal Reserve at the start of the year. Still, markets are pricing in around a 70% chance that the central bank will start cutting rates in March, which most analysts consider too aggressive. Investors now await US retail sales data on Wednesday and fresh remarks from Fed officials this week to better gauge the monetary policy outlook,” added Trading Economics. At the same time, Brent crude traded at $77.73 a barrel.
