Markets Retreat Ahead of Key Interest Rate Decisions

  • Market Overview

Global stocks retreated on Monday as investors braced for an eventful week of corporate earnings and monetary policy decisions from key central banks. The Dow was down just shy of 1%, while the S&P 500 and the Nasdaq lost 1.10% and 1.70%, respectively ahead of the Fed’s smaller rate hike expected on Wednesday, which would signal a deceleration in inflation . Elsewhere, the Bank of England and the European Central Bank are set to raise their borrowing costs by 50 bps each on Thursday.

Expectations for continued monetary policy tightening weighed on European stocks on Monday, with the benchmark STOXX 600 and the German DAX down 0.10% each. “On the economic data front, the German economy unexpectedly contracted in Q4, and Spain's inflation accelerated in January 2023 from December's 13-month low. In corporate headlines, Philips said Q4 revenue beat estimates and that it would scrap 6 000 jobs to restore profitability; while Nissan Motor Co (TYO: 7201 ) and Renault SA (EPA: RENA ) announced a sweeping restructure of their two-decade-old automaking alliance. Also, Unilever (LON: ULVR ) announced it had appointed a new CEO, while Ryanair (NASDAQ: RYAAY ) posted its largest after-tax profit for the October-December quarter,” Trading Economics added.

Stocks in the Asia-Pacific region advanced, led by China’s Shanghai Composite Index which rose about 0.14% to close at 3 269 points as economic optimism stemming from China’s reopening outweighed concerns about the prospect of further monetary tightening in other major economies. “Chinese authorities also said over the weekend that they would promote consumption recovery as a major economic driver and seek to boost imports, bolstering the outlook in Asia’s largest economy,” Reuters reported.

The local bourse was not spared from what seemed like a global slump on Monday, with the FTSE/JSE All Share Index falling 0.58%, ahead of interest rate decisions by key central banks. Sentiment was also dampened by the ongoing energy crisis in the country, with government now considering other mechanisms to address the rising cost of electricity and power outages. “These could include measures such as helping households and small businesses install solar power and energy-saving device set to be announced in the coming weeks,” Trading Economics added.

In commodities, Brent crude fell 1.30% to $85.53 a barrel at 21h00 local time on Monday, as fears of a global economic slowdown and relentless demand for Russian oil exports rattled investors. “Asian markets are showing no let-up in their demand for Russian oil, absorbing a big rise in seaborne exports of Urals crude this month and helping Moscow cope despite Western sanctions and price caps,” Reuters added. Bullion remained muted below $1 924 an ounce for most of the day and was on track for a monthly decline battered by a strong dollar and rising Treasury yields.
PSG Wealth Daily Investment Update, 31 January 2023

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