US Fed hawks to keep stocks in check

(Alliance News) - London's FTSE 100 is called to open lower on Tuesday, with markets digesting hawkish comments from US monetary policymakers, ahead of a key US inflation reading on Thursday.

IG says futures indicate the index of large-cap shares to open 40.5 points, 0.5%, lower at 7,684.44 on Tuesday. The blue-chip index had closed up 25.45 points, 0.3%, at 7,724.94 on Monday and has climbed 3.7% so far this year.

It was a largely weaker day for Asian equity markets on Tuesday, following a strong day on Monday. The Shanghai Composite index was 0.1% lower in the afternoon, while the Hang Seng in Hong Kong was down 0.2%. The S&P/ASX 200 in Sydney closed down 0.3%,

In Japan, the Nikkei 225 rose 0.8%. Tokyo was playing catch-up to other Asian exchanges, as markets there were closed for Coming of Age Day on Monday.

Stocks in New York closed mixed overnight. The Dow Jones Industrial Average slipped 0.3% and S&P 500 0.1%, though the Nasdaq Composite added 0.6%.

"Fedspeak so far this year has mostly reiterated Chair Powell's hawkish messages from the December [Federal Open Market Committee] meeting. Weighing on US equity sentiment overnight and so far today in Asia, officials continued to push against any thought of premature cuts this year in an attempt to tighten financial conditions or send stocks lower, if you may," SPI Asset Management analyst Stephen Innes commented.

San Francisco Fed boss Mary Daly said rates would likely go above 5% before the policy board decides to stop lifting, while Atlanta Fed President Raphael Bostic tipped a similar level but added that they would not be changed for "a long time".

The comments dealt a blow to investors hoping for a change of tack later in the year.

"We are just going to have to hold our resolve," Bostic told the Atlanta Rotary Club. "I am not a pivot guy. I think we should pause and hold there, and let the policy work."

All eyes are now on the release of consumer price index figures Thursday, which could play a key role in the Fed's next policy meeting at the end of the month.

In a quiet economic calendar on Tuesday, US Fed Chair Jerome Powell takes centre-stage as he speaks at a central banking event in Stockholm at 1400 GMT.

The pound was quoted at USD1.2171 early Tuesday in London, down from USD1.2203 late Monday. The euro stood at USD1.0737, down from USD1.0749. Against the yen, the dollar was trading at JPY131.85, largely unchanged from JPY131.88.

There was also a warning on UK inflation. The Bank of England's chief economist on Monday said that a "distinctive context" within the UK creates the potential for rampant prices to prove "persistent".

At a speech in New York, Huw Pill said inflation in the UK is "too high" and that returning UK inflation to its 2% target on a "lasting and sustainable basis" is "essential".

The chief economist explained that a "distinctive context" within UK of higher natural gas prices, a tight labour market, adverse labour supply developments, and goods market bottlenecks creates the potential for inflation to be "more persistent".

"It is therefore in this nexus that I focus in coming to my own assessment of the risks surrounding inflation persistence, which – consistent with the [monetary policy committee]'s collective communication – will strongly influence my monetary policy position in the coming months," he added.

Pill said that the Monetary Policy Committee will "continue to act as necessary" to ensure the Bank of England's 2% inflation target is met on a "lasting basis over the medium term".

The UK's consumer price inflation rate stood at 10.7% in November, the latest monthly reading.

Brent oil was quoted at USD79.43 a barrel early Tuesday UK time, fading markedly from USD80.46 on Monday. Gold was quoted at USD1,873.21 an ounce, falling from USD1,874.24.

In the UK corporate calendar on Tuesday, there is a trading statement from industrial and electronic product provider RS Group and half-year results from Games Workshop.

By Eric Cunha, Alliance News news editor

Comments and questions to [e-mail]

Copyright 2023 Alliance News Ltd. All Rights Reserved.