Higher call on hopes of peak in US rates

(Alliance News) - Stocks in London are set to open higher on Tuesday as markets cheered some dovish words from two senior Federal Reserve officials on Monday.

IG says futures indicate the FTSE 100 to open 52.39 points, or 0.7%, at 7,544.60 on Tuesday. The index of London large-caps closed down just 2.37 points at 7,492.21 on Monday.

The vice-chair of the Federal Reserve said the US central bank needed to "proceed carefully" with forthcoming interest rate decisions.

Officials "are in a sensitive period of risk management", Philip Jefferson said in prepared remarks on Monday, needing to balance the respective risks of not tightening enough and being too restrictive.

His comments aligned with those from Dallas Fed President Lorie Logan, who noted that tighter financial conditions could mean the bank does less in terms of raising its policy rate.

Referring to the rise in bond yields, Logan said: "If term premiums rise, they could do some of the work of cooling the economy for us, leaving less need for additional monetary policy tightening to achieve the [Federal Open Market Committee]'s objectives."

Markets now see an 86% chance of the Fed holding rates steady at its next meeting in November, according to the CME FedWatch Tool. Just one week ago, they saw a 72% chance of this outcome.

Further, at the Fed's following meeting in December, they are a 72% chance of rates holding at their current level. A week prior, markets saw just a 53% chance of this possibility.

The dollar softened on Tuesday morning as markets hoped that the Fed's tightening cycle may soon draw to an end.

Sterling was quoted at USD1.2229 early Tuesday, up from USD1.2213 at the London equities close on Monday. The euro traded at USD1.0564, higher than USD1.0548 late Monday. Against the yen, the dollar was quoted at JPY148.68, higher versus JPY148.59.

In Tokyo on Tuesday, the Nikkei 225 index was up 2.4%. The S&P/ASX 200 in Sydney was up 1.0%. In China, the Shanghai Composite was down 0.5%, while the Hang Seng index in Hong Kong was up 1.2%.

Debt-saddled Chinese property developer Country Garden said Tuesday that it did not expect to meet all of its offshore payment obligations in time as it edges towards a potential default.

Country Garden – one of China's biggest property developers – had racked up debts estimated at CNY1.43 trillion, USD196 billion, by the end of 2022.

Its cash flow problems have ignited fears that it could collapse with consequences for China's economy, which is already suffering from record-high youth unemployment, flagging consumption and a broader crisis in the real estate sector.

Country Garden, which was already formally at risk of default in September, last month repaid USD22.5 million in interest on loans at the last minute during a 30-day grace period.

It then negotiated the rescheduling of several repayments with creditors, with several more deadlines looming over the coming weeks.

The firm said Tuesday it had missed a payment of HKD470 million, or USD60 million. The group has a grace period of 30 days to avoid a potential default.

However, in a filing with the Hong Kong Stock Exchange, the firm said it "expects that it will not be able to meet all of its offshore payment obligations when due or within the relevant grace periods".

In the US on Monday, Wall Street ended higher with the Dow Jones Industrial Average up 0.6%, the S&P 500 up 0.6% and the Nasdaq Composite up 0.4%.

Gold was quoted at USD1,860.96 an ounce early Tuesday, sharply higher than USD1,852.16 at the London equities close on Monday. Brent oil was trading at USD87.75 a barrel, down from USD87.94.

In Tuesday's corporate calendar, there are trading statements from newspaper publisher Reach and recruiter Robert Walters, as well as annual results from research and data analytics group YouGov.

The economic calendar has the latest UK grocery market share figures and an update on inflation from Kantar at 0800 BST.

By Heather Rydings, Alliance News senior economics reporter

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