- The MSCI All World Index is flat after last week’s slide
- Dollar extends gains ahead of US CPI, retail trade data
- A chorus of Fed officials will speak this week
LONDON/SYDNEY, Feb 13 (Portal) – Global stocks edged higher and the dollar stabilized on Monday ahead of US inflation data that could set the outlook for global interest rates, amid news that the US Air Force has revealed another flying object shot down, some caused geopolitical uncertainty.
Officials declined to say whether the object sighted along the Canadian border, which is the fourth downed this month, resembled the large white Chinese balloon that was shot down in early February.
Equities have rallied in the early weeks of 2023, buoyed by the prospect of a peak in inflation — and interest rates — and hints of continued U.S. growth, suggesting the economy could be in for a soft landing.
But that optimism hit a brick wall the week before last when the Federal Reserve reiterated its message that the fight against inflation is not over and after the January jobs report showed a red-hot job market.
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The MSCI All World Index (.MIWD00000PUS), which gained nearly 10% in the first five weeks of the year, fell nearly 1.5% last week. Most recently it was 647.09 points that day.
US CPI and retail sales data this week could prove to be important catalysts for the near-term direction of markets, with much depending on whether inflation slowed further in January.
Average forecasts are for total and core consumer prices to rise 0.4% for the month with sales recovering 1.6%.
Risks could turn to the upside given a re-analysis of seasonal factors released last week that saw CPI revised higher in December and November. As a result, core inflation rose to 4.3% on an annualized three-month basis from 3.1%.
There were also changes to the weights for accommodation costs and used car prices, which could skew the consumer price index upwards.
“Markets have stumbled again on their over-enthusiasm for a Fed and other central bank interest rates, with this week’s CPI and retail sales likely to suggest that inflation has picked up month-on-month and that US consumer spending is proving to be more resilient said Marc Ostwald, chief global economist at ADM Investor Services.
FUTURE STRENGTHENING
In Europe, shares rose, led by gains in industrials and defense stocks, which pushed the STOXX 600 (.STOXX) up 0.7%. The index fell nearly 1% last week.
US stock index futures were up between 0.3% and 0.6%.
Markets have already significantly raised the profile for future Federal Reserve tightening, with rates now peaking at around 5.15% and rate cuts coming later and more slowly.
There are also a slew of Fed officials speaking this week to react to the data.
10-year Treasury yields are at a five-week high of 3.75% after rising 21 basis points last week, while 2-year Treasury yields hit 4.51%.
The euro, which slipped 1.1% last week, edged up 0.2% to $1.0695 after hitting a five-week low in very early trading on Monday.
The dollar also rallied against the yen on reports that the Japanese government is likely to appoint academic Kazuo Ueda as the next Bank of Japan governor.
The surprise news sparked speculation that the BOJ’s super-loose policies might soon end, although Ueda himself later said it was appropriate to maintain the current stance.
The dollar was last up nearly 0.7% to 132.37 yen after recovering from a low of 129.80 on Friday.
The rise in yields and the dollar weighed on gold, which fell 0.2% to $1,861.70 an ounce from a high of $1,959 in early February.
Oil prices jumped into fresh selling after spiking on Friday when Russia announced it plans to cut its daily production by 5% in March after the West imposed price caps on Russian oil and oil products.
Brent crude was unchanged at $86.36 a barrel on the day, as were US futures, which remained at $79.69.
Reporting by Amanda Cooper and Wayne Cole; Edited by Mark Potter and David Holmes
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