US stocks rose on Monday ahead of a potentially pivotal week for global financial markets, with central banks on both sides of the Atlantic expected to signal a big shift in their fight against inflation by slowing the pace of interest rate rises.
After selling off last week, Wall Street’s benchmark S&P 500 closed 1.4 per cent higher, while the tech-heavy Nasdaq Composite added 1.3 per cent.
The gains come ahead of crucial monetary policy meetings at the US Federal Reserve, the Bank of England and the European Central Bank, all of which are forecast to raise interest rates at a slower pace when they meet separately this week, despite stubbornly high rates of inflation.
Investors are also looking ahead to the release of November’s US consumer price index figures and the Fed’s latest economic projections on unemployment, gross domestic product and inflation, with traders hoping for hints on where interest rates will settle later this year, and when they might eventually begin to fall.
Markets are pricing in that the Fed’s main policy rate will crest at about 5 per cent in the spring before falling in the second half of next year as inflation moves slowly back towards the central bank’s 2 per cent target.
“We do feel that market consensus still underappreciates the risk of inflation staying higher longer and also is dangerously second-guessing the Fed in terms of [second half of 2023] rate cuts,” said Chris Turner, global head of markets at ING.
Events this week will determine whether investors begin next year focused on inflation or the threat of recession, Turner added.
The dollar on Monday gained 0.2 per cent against a basket of six international peers, although the world’s de facto reserve currency has tumbled more than 8 per cent since September, largely on hopes that inflation has peaked in the US and as China has begun to ease its strict zero-Covid policies.
Asian equities kicked off the week lower, with Chinese technology and property stocks leading losses, having rallied at the end of last week.
Hong Kong’s Hang Seng index fell 2.2 per cent while China’s CSI 300 lost 1.1 per cent and South Korea’s Kospi lost 0.7 per cent. Japan’s Topix shed 0.2 per cent.
The Hang Seng Mainland Properties index, which tracks some of China’s largest developers, fell 7.5 per cent, while the Hang Seng Tech index lost 4.1 per cent. Country Garden Services, a spinout of China’s biggest real estate group, fell as much as 17 per cent, while search engine company Baidu shed 7 per cent.
Elsewhere, Europe’s regional Stoxx 600 lost 0.6 per cent and London’s FTSE 100 slipped 0.4 per cent.
Oil prices ticked higher on Monday, erasing earlier losses, with Brent crude, the international oil benchmark, rising 2.5 per cent to settle at $77.99 a barrel — up slightly from its lowest level this year.