European stocks and US futures traded between gains and losses on Friday, the day after the minutes of the Federal Reserve’s December meeting revealed that central bank officials are expected to cut interest rates this year.
The regional Stoxx Europe 600 was stable in the afternoon, having previously fallen 0.4 percent, gaining about 3 percent this week. London’s FTSE 100 rose 0.4 percent while France’s Cac 40 and Germany’s Dax were flat. Contracts tracking Wall Street’s benchmark S&P 500 and the tech-heavy Nasdaq 100 rose 0.1 percent ahead of the New York open.
The S&P 500 rose 13 percent between mid-October and early December as inflation in the world’s largest economy showed signs of slowing. The index is down about 5.5 percent since then, but on the back of hawkish comments from Fed officials, many are warning that prices remain too high to justify cutting borrowing costs in 2023.
Minutes from the latest meeting of the Federal Open Market Committee echoed the hint, dealing a blow to traders who were not convinced the Fed would hold interest rates at around 5 percent to drag inflation back to its target.
The latest minutes show that “no participants expect it to be appropriate to start reducing the federal funds rate target in 2023”, with officials saying that “the restrictive policy stance should be maintained” until economic data “provides confidence that inflation is on the way down.” sustained to 2 percent, which is likely to take some time.
Lee Hardman, senior currency analyst at MUFG bank, said the comments, which were later reinforced by senior IMF official Gita Gopinath, “set the bar high for the Fed to rest on.” [or] ending the hiking cycle in the near term”, although he noted that markets remain “skeptical that the Fed will need to raise rates above 5 percent as planned”.
A measure of the dollar’s strength against a basket of six peers was uneven today, with the currency having weakened just over 7 percent over the past three months.
In Asia, Hong Kong’s Hang Seng index added 1.2 percent, taking its gains since early November to around 43 percent. “Given past divergence [with US indices] and position, there may be room for more gains,” said Mitul Kotecha, head of emerging market strategy at TD Securities, “but with global equity markets stuttering amid earnings and growth worries, it’s questionable how far the Hang Seng can deviate from the global . trend”.
China’s CSI 300 index of Shanghai- and Shenzhen-listed shares added 1.9 percent, up 13 percent since early November, even as the country battles an unprecedented Covid-19 outbreak.