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30.01.2023 01:48 PM
Stock markets decline ahead of key interest rate decisions

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Stocks in Europe declined on Monday alongside US equity futures as bonds in Europe fell at the start of a week ahead of key monetary policy decisions and earnings reports from high-profile companies on both sides of the Atlantic.

The Stoxx Europe index fell by about 0.7%, shedding some of the gains it made during one of the biggest winning streaks on record in January. Tech stocks led the decline, with Prosus NV shares down by more than 5% after a rout in Hong Kong's tech sector. Shares of Royal Philips NV rose after the medical equipment producer announced a new round of job cuts.

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S&P 500 and Nasdaq 100 futures reversed downwards after Friday's upsurge as traders focused on lackluster outlooks from some of the world's biggest tech companies, which pushed the Nasdaq 100 down by 1%.

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Fed policymakers are expected to increase interest rates by a quarter percentage point on Wednesday, trimming the size of rate hikes for the second time in a row. Recently released data indicates that the central bank's aggressive drive to bring down inflation is working. However, there are signs that Fed policy has put some pressure on earnings.

Nevertheless, the Federal Reserve's broader outlook is weighing down on the US dollar, which has boosted Asian markets and helped them outperform the US market this year. China's shift from its Covid Zero policy is also bolstering the regional outlook. Last week's data indicated that the number of infections remained under control during the holiday season, while data on consumption reinforced hopes for an economic recovery.

By the middle of the week, markets will focus on central banks. On Wednesday, the Fed is expected to raise interest rates by 25 basis points amid signs that inflation is slowing down.

Friday's report indicated that the Fed's preferred inflation gauge dropped in December to its slowest annual pace in a year, while spending declined. Separate data from the University of Michigan showed that inflation expectations in the US continued to decline in late January, contributing to higher consumer confidence.

The European Central Bank and the Bank of England are projected to raise their rates by half a percent each the day after the Fed's decision.

Andrey Shevchenko,
Analytical expert of InstaForex
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