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U.S. wage growth moderates, Wall Street rallies
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MSCI AxJ index up 0.6%; dollar flat
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All eyes on 1900 GMT Fed announcement
(Updates with comment, refreshes prices)
By Amanda Cooper
LONDON, Feb 1 (Reuters) - Global stocks rose on
Wednesday as signs of slowing U.S. wage growth supported
expectations the Federal Reserve could signal an end to
interest-rate hikes at its meeting later on.
U.S. benchmark indices rallied and bond prices rose, while
the dollar eased overnight when the Fed's preferred wages gauge,
the U.S. employment cost index, showed a 1% rise last quarter,
its smallest increase in a year.
The MSCI All-World index was last up 0.2% on
the day, having ended January with a 7% gain, thanks in large
part to investors growing more optimistic about the outlook for
global inflation and interest rates.
The Fed will announce its rate decision at 1900 GMT,
followed by a news conference with Chair Jerome Powell.
Interest-rate markets have priced in a slowdown in the pace
of hikes, with Wednesday's expected 25 basis point (bps)
increase seen bringing the Fed funds rate target range to
4.5%-4.75%. Investors will try to gauge whether and how hard Fed Chair
Jerome Powell will push back on market pricing for rate cuts
beginning as soon as the second half of this year.
"The market is anticipating some pushback from Powell,
although it's difficult to pin down how much is enough to
convince the market," said Brian Daingerfield, head of G10
currency strategy at NatWest Markets.
"Anything short of Powell going 10 for 10 hawkish may
ultimately be seen as being not hawkish enough. Conversely, the
market may take even the smallest dovish concession and run with
it."
Strategist at ING said economic data should play a greater
role in shaping investor expectations for monetary policy.
"One of the reasons is that central banks are purposefully
behind the curve," Padraig Garvey, who is ING regional head of
research for the Americas, said.
"Their past mistake in anticipating the inflation surge
means they're unlikely to acknowledge it is going back to target
until they have a much higher degree of confidence than now," he
said.
"The other reason is that markets are correctly priced for
the next few meetings."
Data on Wednesday showed headline inflation in the euro zone
moderated to 8.5% in January, from 9% in December, while core
prices picked up to 7% from 6.9%. This measure will keep the
heat on the ECB to raise interest rates, as it could prove much
tougher to tame.
"As the ECB's attention is gradually turning away from the
main measure and on to core inflation, we think that falls in
headline inflation will do little to stem the central bank’s
hawkishness," said Mateusz Urban at Oxford Economics.
In Europe, the STOXX 600 rose 0.3%, boosted by
industrials and tech stocks, while an early lift from healthcare
stocks faded.
Currency markets have also been treading water in the run-up
to the Fed meeting, and ahead of the Bank of England and
European Central Bank meetings on Thursday.
The dollar dropped for a fourth straight month in January,
and lost 1.5% on the euro and 0.8% on the yen . The euro was last up 0.2% at $1.0882, while against
the yen, the dollar fell 0.2% to 129.81.
U.S. Treasury prices edged higher, pushing the benchmark
10-year yield down 4 bps to 3.4846%. S&P 500 futures fell 0.2%.
EARNINGS, ECONOMICS
Investors are more sanguine about the outlook for inflation, but cracks are appearing in the global economy. Manufacturing activity across Europe and Asia contracted again last month, underscoring the fragility of the global economic recovery, although factories in the euro zone at least may have passed the trough, surveys showed on Wednesday.
Facebook owner Meta reports earnings later on Wednesday. Company executives had struck a cautious tone at earnings calls on Tuesday as the economy slows. Exxon posted a record $59 billion adjusted profit, though Caterpillar and McDonald's shares fell as the companies warned of inflation squeezing profit margins. In commodity markets, optimism for demand supported oil prices and Brent crude futures rose 0.3% to $85.74 a barrel, while gold , which rallied on the dollar's weakness through January, rose 0.1% to $1,928.20 an ounce. Indian conglomerate Adani Group, meanwhile, remained under pressure, with its flagship Adani Enterprises shares down 3% and below the lower end of the offer price for a $2.5 billion stock sale that ended on Tuesday. Prices for dollar bonds in Adani Group companies steadied after last week's rout. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates YTD Global asset performance Asian stock markets ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Additional reporting by Tom Westbrook; Editing by Jamie Freed, Kim Coghill, Arun Koyyur and Barbara Lewis)
