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Stocks dip, U.S. yields rise ahead of central bank flurry

2023-01-30T16:14:07Z

A gauge of global stocks dipped on Monday after six sessions of gains while the yield on the U.S. ten-year Treasury rose for a third day, ahead of central bank policy announcements and data that may shed light on whether progress has been made in bringing down inflation.

Investors widely expect the Federal Reserve will raise rates by 25 basis points (bps) on Wednesday, with announcements on Thursday from the Bank of England and European Central Bank (ECB), both of which are largely expected to hike by 50 bps.

“This is probably a week where we are going to have a year’s worth of surprises possibly, so it makes sense to me there is a little bit of profit taking, some positioning ahead of some very important meetings but also data releases,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments in Menomonee Falls, Wisconsin.

“(The Fed) would rather err on the side of sounding too hawkish but talk is cheap – they are at the point now with the hiking cycle where what really matters is what the data says and what the Fed delivers.”

The Dow Jones Industrial Average (.DJI) fell 89.41 points, or 0.26%, to 33,888.67, the S&P 500 (.SPX) lost 36.23 points, or 0.89%, to 4,034.33 and the Nasdaq Composite (.IXIC) dropped 200.13 points, or 1.72%, to 11,421.58.

The rate increase expected at the Federal Open Market Committee’s Jan. 31-Feb. 1 meeting would bring the policy rate to the 4.5%-4.75% range. That’s two quarter-point rate hikes short of the level most Fed policymakers in December thought would be “sufficiently restrictive” to bring inflation under control. But futures currently expect rates to peak at about 4.9% in June before retreating to 4.5% by year-end.

Markets will also grapple with a host of U.S. economic data, culminating in Friday’s payrolls report for January. Investors see signs of weakening in the labor market as a key factor in bringing down high inflation. Other data included gauges of the manufacturing and services sectors.

The U.S. corporate earnings season also remains in high gear, with earnings this week expected from the likes of Apple (AAPL.O), Alphabet (GOOGL.O) and Amazon (AMZN.O). Earnings for S&P 500 companies are expected to show a decline of 3% for the quarter, per Refinitiv data, weaker than the 1.6% fall seen at the start of the year.

Stocks in Europe were also lower, with rate-sensitive names such as technology shares among the primary decliners.

The pan-European STOXX 600 index (.STOXX) lost 0.30% and MSCI’s gauge of stocks across the globe (.MIWD00000PUS) shed 0.68%. MSCI’s index was on track for its biggest January percentage gain since 2019 while the STOXX 600 was poised for its largest January percentage gain since 2015.

U.S. Treasury yields rose ahead of the central bank meetings and economic data, with the 10-year yield up for a third consecutive session. Benchmark 10-year notes were up 2.4 basis points to 3.542%, from 3.518% late on Friday.

The greenback, which was poised for its fourth month of declines as expectation have increased the Fed was nearing the end of its rate-hiking cycle, was up slightly.

The dollar index rose 0.098%, with the euro up 0.08% to $1.0876.

The Japanese yen weakened 0.34% versus the greenback to 130.31 per dollar, while Sterling was last trading at $1.2379, down 0.15% on the day.

Crude prices fell ahead of the expected hikes by central banks and signals of strong Russian exports.

U.S. crude was down 1.13% at $78.78 per barrel and Brent was at $85.75, down 1.05% on the day.

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