- GRAPHIC-How shocked 2022, rocked and rolled global markets
- European markets bump higher, S&P futures rise
- Yen contributes to big rally of week, dollar is bearish
- Oil prices are attempting to post gains for the fourth straight day
LONDON/SYDNEY, December 22 (Reuters) – A short-lived upswing for global equities faltered on Thursday as easing US inflation expectations were overshadowed by fears of an economic slowdown.
Futures markets indicated that Wall Street’s benchmark stock index, the S&P 500, was down 0.2% at the opening bell, after rising 1.5% in the previous session. Contracts on the technology-focused Nasdaq 100 also fell 0.2%.
Softening gas prices have pushed US consumers’ 12-month inflation expectations down to 6.7% this month, the lowest since September 2021, data showed on Wednesday.
Meanwhile, a separate poll the day before showed that US consumer confidence rose to its highest level since April, beating expectations of economists polled by Reuters, while strong results from Nike also lifted Wall Street.
“We are still in a bear market,” said Luca Paolini, chief strategist at Pictet Asset Management. “You get one or the other short rally and then it goes flat. There is very little conviction. The only belief is that there will be a recession.”
The S&P 500 is on track to end the year nearly 19% lower, while MSCI’s broad scale world stocks (.MIWD00000PUS) is down the same amount, and has fallen in eight of the last 12 months.
The US Federal Reserve increased its main interest rate by 50 basis points in December in its seventh hike of the year. Money managers believe the Fed’s tightening campaign is likely to push the US economy into recession, which in turn should help stubbornly high inflation fall.
“The view is that we are nearing the end of rate hikes and there may be a (Fed) pivot,” said Anish Grewal, portfolio manager at London-based hedge fund Enora Global.
“Markets are too relaxed on this,” he said, but “expectations are that next year we’ll get to around September and we’re in rate cut mode.”
The dollar index, which measures the US currency against a basket of six others, slipped as much as 0.5% earlier in the day before rebounding to remain flat. The index is down almost 2% so far this month.
Sterling slipped 0.3% to $1.205 after data showed the UK economy contracted more than initially thought in the third quarter.
Against the Japanese yen, the dollar slipped 0.3% to trade at 132.12 yen, edging back to the four-month low it hit earlier this week as the Bank of Japan, the world’s most dovish major central bank, headed into 2022 , took a surprisingly restrictive turn .
Investors continue to grapple with the aftermath of the BOJ’s shock decision to let government bond yields rise to streamline its controversial yield curve control policy.
10-year Treasury yields soared weakly to as high as 0.483%, the highest since July 2015 and just a hair’s breadth from the BOJ’s new 0.5% ceiling.
“The jump in yields and the further strengthening of the yen will lower the value of Japanese investors’ assets,” said analysts at Capital Economics.
Capital Economics now also expects the dollar to fall towards 125 yen next year.
In US bonds, the benchmark 10-year Treasury yield fell 3 basis points to 3.656% as inflation expectations eased. That key debt yield, which underpins credit prices around the world, only surpassed 4.2% at the end of October.
Oil prices rallied after data showed a larger-than-expected fall in US crude inventories with a massive snowstorm expected to blanket much of the United States and hit travel-related demand for fuel.
Brent crude was up 1.7% to $83.57 a barrel and US crude was up 1.3% to $79.57.
Reporting by Naomi Rovnick and Wayne Cole; Additional reporting by Karin Strohecker; Edited by Arun Koyyur, Kirsten Donovan
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