Global stock markets wobble as investors wait for US Fed decision
Federal Reserve poises to lit interest rates again and some of the world’s biggest companies are scheduled to publish their latest earnings reports
Global stocks moved in mixed directions on Monday as markets began a busy week, with the US Federal Reserve poised to lit interest rates again and some of the world’s biggest companies scheduled to publish their latest earnings reports. Asian markets ended lower.
The Fed is widely tipped to hike borrowing costs by 0.75 percentage points on Wednesday as it batles soaring inflation.
US second-quarter gross domestic product data are due Thursday, with some observers warning it could show a second successive contraction -which is considered a technical recession.
Investors are also awaiting the release of earnings from business titans Apple, Amazon and Google parent Alphabet.
“Recent risk-on moves appear to be on thin ice as markets gear up for another bout of earnings and a crucial Fed rate decision,” said market analyst Joshua Mahony at trading plaform IG.
Despite the deluge of market-moving news on the calendar, European stocks had been trading higher across the board until an announcement by Russia’s Gazprom that it was cuting back gas deliveries to Germany due to a faulty turbine, which pulled down the DAX index in Frankfurt.
It ended the day down 0.3 percent, while the CAC in Paris climbed 0.3 percent and London’s FTSE 100 rose 0.4 percent.
“Gazprom and turbine problems aside, today’s more resilient tone appears to suggest that the prospect of further economic weakness might act as a catalyst that could prompt central banks to pare back some of their more hawkish rhetoric when it comes to raising rates,” said Michael Hewson at CMC Markets.
On Wall Street, both the Dow and S&P 500 were showing modest gains in late morning trade, while the tech-heavy Nasdaq Composite was lower.
Markets were roiled last week when the European Central Bank finally began ramping up interest rates to tackle runaway consumer prices in the eurozone.
The ECB had surprised investors Thursday with a bigger-than-expected rate increase of 0.5 percentage points. Consumer prices are soaring worldwide ater economies reopened from pandemic lockdowns and as the war in Ukraine keeps energy prices elevated.
That, in turn, has sparked aggressive rate hikes from major central banks to try and dampen inflationary pressures.
Federal Reserve chiefs have already said their main priority was bringing inflation down from four-decade highs, even at the expense of growth.
“We still see further downside for risky assets as recession fears accumulate and central banks remain commited to fighting inflation at the expense of growth,” said Standard Chartered strategist Eric Robertsen.
Others warned that while inflation could begin to ease, the Fed could still push borrowing costs to around five percent and was unlikely to lower rates as soon as many traders hope.
Oil prices rose on Monday, bolstered by supply fears, a dip in the U.S. dollar and stronger equity markets, but prices seesawed as some worried rising US interest rates would weaken fuel demand.
Brent crude futures for September rose $1.86, or 1.8%, to $105.06 a barrel by 1402 GMT by 11:35 a.m. ET (1535 GMT), while U.S. West Texas Intermediate (WTI) crude futures rose $1.94, or 2%, to $96.61 a barrel.
“A slightly weaker US dollar and improving equity markets are supporting oil,” UBS oil analyst Giovanni Staunovo said.
Oil futures have been volatile in recent weeks, pressured by worries that rising interest rates could limit economic activity and thus cut fuel demand growth but supported by tight supply especially since Russia’s invasion of Ukraine and Western sanctions on Moscow.
“The U.S. and European economies are slowing and with the Federal Reserve set to raise interest rates again this week, traders remain very cautious,” said Dennis Kissler, senior vice president of trading at BOK Financial.
Fed officials have indicated the U.S. central bank would likely raise rates by 75 basis points at its July 26-27 meeting. China, the world’s secondbiggest economy, narrowly missed a contraction in the second quarter, growing just 0.4% year-on-year.
But a steep front-month premium over the second month continues to signal near-term supply tightness. The spread setled at $4.82/ bbl on Friday, an all-time high when excluding expiry-related spikes in the two previous months.
Libya’s National Oil Corporation (NOC) said it aimed to bring back production to 1.2 million barrels per day (bpd) in two weeks, from around 860,000 bpd.
But analysts expect Libya’s output to remain volatile as tensions remained high ater clashes between rival political factions over the weekend.
Prices also drew support from “expectations that Russian oil supply will edge lower in the months ahead as widely-expected plans for a price cap on Russian oil may have the opposite effect on Oil prices than hoped for,” said Warren Paterson, head of commodities strategy at ING.
The European Union said last week it would allow Russian state-owned companies to ship oil to third countries under an adjustment of sanctions agreed by member states last week aimed at limiting the risks to global energy security.
However, Russian Central Bank Governor Elvira Nabiullina said on Friday that Russia would not supply oil to countries that decided to impose a price cap on its oil.