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STOXX 600 falls 0.6%
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NatWest drops on bleak outlook
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Tech sector lags
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Wall St futures lower
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50 IS BACK! (1034 GMT)
When the Fed downshifted to a 25 basis point rate rise at the Jan/Feb meeting, markets were
under the impression that the era of oversized rate hikes was over.
But strong labour market data and stubbornly high inflation prints have the market tearing up the playbook and the option for a half-point rate rise in March is back on the table.
In comments on Thursday, St Louis Fed President James Bullard said he advocated for a 50-bp hike earlier this month, while not ruling anything out at the next meeting.
Cleveland Fed President Loretta Mester said she wasn't ready to say if the Fed needs a bigger hike next month.
Markets are now pricing in around 29 basis points of tightening at the March meeting, implying around a 15% chance of a 50 basis point rate rise, while expectations for the peak rate stand above 5.3%, their highest this cycle. In the wake of the inflation data, Goldman Sachs economists have pencilled in an additional rate hike, now expecting three 25 basis point rate rises at the March, May and June meetings. UBS have added one more hike to their forecast, expecting two more 25 basis point rate rises in 2023. Deutsche Bank added two more 25 bp rate hikes to its forecast and expects four more hikes this year.
"Time will tell how this plays out," Deutsche Bank analysts said in a note, before highlighting that there's still a lot of risk events before the Fed's next confab.
"We've still got plenty of data coming out before that next decision, including the jobs report and CPI print for February, so all eyes will be on those releases," Deutsche Bank added.
(Samuel Indyk)
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RENEWED RATE HIKE FEARS KNOCK EUROPEAN SHARES (0909 GMT)
European shares are down 1%, with rate sensitive tech sector leading losses after resilient
economic data out of the U.S. raised market bets that the Fed will carry on hiking interest
rates.
Also weighing, NatWest shares sank more than 8% after the lender warned that rising interest rates may not deliver the long-lasting earnings bonanza investors hope for, even though profit jumped by 33% last year. The pan-European STOXX 600 index slid 1%, with technology shares tumbling 2%. The STOXX 600 is still set for weekly gains thanks to four consecutive days in positive territory this week.
U.S. indexes closed sharply lower on Thursday after unexpected strong inflation data and a
drop in weekly jobless claims aided bets that the Fed will stick to its aggressive tightening
path.
(Joice Alves)
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WHEN DOVES CRY (0749 GMT)
Investors are feeling the heat as sticky inflation and a tight labour market revive good ol' fears of the Fed staying hawkish for longer. The market has succumbed to the Fed and is now pricing U.S. interest rates to stay above 5% for the year. Traders had been hoping for deep rate cuts by the end of 2023 in the face of an economic downturn, but a resilient U.S. economy has sent punters back to the drawing board.
Thursday's jobless report and hotter-than-expected inflation data have cast a shadow over Asian markets on Friday, with MSCI's broadest index of Asia-Pacific shares outside Japan at its lowest in more than a month and set for a third straight week in the red. The last time the index had a run like that was back in October, in the midst of peak hawkishness and king dollar's reign. This has pushed benchmark 10-year Treasury yields to their highest since late December, with the dollar at six-week highs.
Thursday's report showed goods and services prices increased, raising questions about the goods disinflation narrative, according to strategists from Saxo Markets.
Fed officials Loretta Mester and James Bullard added to the hawkish rhetoric as they cautioned that additional hikes were essential to ease inflation. UK retail data and French inflation data are on deck and will help investors to gauge the state of inflation in the region. The data comes a day after France's CAC 40 touched a record high while London's FTSE 100 continued its recent run of record highs. Meanwhile, in the cryptoverse, Reuters reported Binance had secret access to a bank account belonging to its purportedly independent U.S. partner and transferred large sums of money from the account to a trading firm managed by the cryptocurrency exchange's CEO, Changpeng Zhao.
Key developments that could influence markets on Friday:
Economic events: UK retail sales, Swedish unemployment rate, French CPI data
Speakers: Bank of England's Huw Pill, ECB's Gabriel Makhlouf, Norway Central Bank
Governor Ida Wolden Bache
(Ankur Banerjee)
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EUROPEAN STOCKS SEEN LOWER AS U.S. RATE FEARS RAMP UP (0740 GMT)
European futures are pointing to a weaker start of the day for bourses across the
region after a bout of resilient economic data out of the U.S. raised market expectations that
more interest rate hikes were in the offing.
U.S. data on Thursday showed that monthly producer prices accelerated in January, while
another report showed the number of Americans filing new claims for unemployment benefits
unexpectedly fell last week, offering more evidence of the economy's strength despite tighter
monetary policy.
In the UK, retail sales volumes unexpectedly rose by 0.5% in monthly terms in January, but
the overall picture remained one of weak demand from inflation-hit consumers, official data
showed on Friday.
(Joice Alves)
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