World stock markets stumble at start of new trading year
Oil prices rally on supply concerns as Iran sends warship to Red Sea
LONDON: Global stock markets mostly fell on Tuesday, the first trading day of the year, as a global equity rally stumbled. Meanwhile, the dollar rose while oil prices jumped as tensions ratcheted higher in the Red Sea.
Despite the drop in stocks on Tuesday, investors are eying more gains in 2024 as central banks prepare a series of interest-rate cuts as inflation cools. Stock market records tumbled in the final months of last year in New York, Frankfurt, Paris and Tokyo as investors piled into equities in anticipation of rate cuts. US stocks fell on Tuesday, the first trading day of the year, as interest rates rebounded slightly and investors took some money off the table following a surprisingly strong 2023 that saw the S&P 500 rally 24 percent. Apple shares led the pullback after Barclays downgraded the member of the Magnificent 7 market leaders basket to an underweight rating. Markets were closed Monday for New Year’s Day.
The stock market finished 2023 with a bang, as the S&P 500 climbed for nine weeks in a row to end the year, notching its best weekly win streak since 2004. Risk assets enjoyed a big relief rally as the economy remained resilient and inflation cooled, while the Federal Reserve signaled an end to rate hikes and forecasted rate cuts later this year. The market also endured a regional banking crisis as well as wars in Ukraine and the Middle East
“Notwithstanding the extended winning streak, we are not sure this negative disposition is all that surprising to market participants, who recognized that there was some performance chasing at the end of 2023 and that some profit taking was bound to happen in the wake of a parabolic advance,” said Briefing.com analyst Patrick O’Hare.
Nevertheless, investors retain a positive outlook, according to analysts. “There remains an increasing belief that Fed rate cuts, which have bullishly marked all capital market trends in the last eight weeks, are still fully ingrained in stock market sentiment,” said SPI Asset Management’s Stephen Innes.
He added that there was a question on how investors would reconcile the difference between market expectations of 150 basis points of cuts and the Fed’s forecast of 75. Despite the upbeat outlook on rates, Asian markets started the year with little fanfare. Hong Kong and Shanghai each extended last year’s losses. Traders were unmoved by a speech by Chinese President Xi Jinping in which he said the economy had become “more resilient and dynamic”.
Observers warned that while Beijing has pledged a series of measures to kickstart growth, much more was needed to instill confidence, particularly regarding the property sector. Tokyo was closed for a holiday, though investors are keeping an eye on developments in Japan a day after a huge earthquake that Prime Minister Fumio Kishida said caused “extensive” damage and numerous casualties.
All tsunami warnings from that quake were lifted on Tuesday. Oil prices rallied more than 2 percent before paring gains on supply concerns after Iran dispatched a warship to the Red Sea in response to the US Navy’s destruction of three Houthi boats. Tehran’s move comes as tensions still run high in the waterway, where the Yemeni rebels have launched attacks on several international container ships, causing some firms to stop using it.
However, a number of shipping companies have resumed transit following efforts by a US-led naval coalition to police the maritime route. Bitcoin broke $45,000 for the first time since April 2022 on optimism that the United States would allow wider trading of the world’s biggest cryptocurrency.
“Crypto looks to be setting itself up for a big year ahead, with bitcoin rising into a fresh 21-month high on anticipation of the likely approval of the spot bitcoin ETF product that will see Wall Street finally gain a strong presence in the industry,” noted Joshua Mahony, chief market analyst at Scope Markets.