Global equities mark with focus on Fed easing

London/Singapore — European shares eked out gains on Wednesday as investors waited for clues on when the US Federal Reserve may start to cut interest rates while the dollar headed for its biggest monthly gain since September.

The pan-European Stoxx 600 index gained 0.3%, rising for the sixth straight session as financial services shares added 0.5%. The MSCI world equity index, which tracks shares in 47 countries, added 0.1%

Spanish lender Santander rose 1.7% after reporting a record profit for the last quarter of 2023, beating forecasts.

Fed policymakers have signalled they won’t cut interest rates yet, with economists predicting a delay until June given the strength in household spending and uncertainty about the economic outlook.

Investors are therefore focused on any comments from Fed chair Jerome Powell, including a potential further turn in his once-hawkish stance or hints on how soon the central bank could begin easing rates.

Interest rate futures price a roughly 43% chance of a Fed rate cut in March, down from 73% at the start of the year.

“We could see the central bank look to put a pin in the idea that a March rate cut is coming,” Michael Hewson, chief markets strategist at CMC Markets, said in a note.

Wall Street was set for losses, however. Nasdaq futures fell 0.8%, while S&P 500 futures lost 0.3% before earnings from major tech firms. The huge weighting of so-called Magnificent Seven stocks in the S&P 500 is under renewed focus from investors, even as their collective strength pushes US equities to record highs.

The dollar has gained 2.2% against a basket of major currencies this month, its best since September, as markets tempered expectations on the speed and scale of rate cuts. It was last up 0.1% at 103.52.

Earlier, Chinese shares lost 0.9% after a survey showed manufacturing activity shrank for a fourth month in January. That dragged MSCI’s broadest index of Asia-Pacific shares excluding Japan down 0.4% and it was heading for a monthly loss of roughly 5%, snapping a two-month winning streak.

The loss has in part been due to a steep sell-off in Chinese stocks this month that prompted Beijing to step in to put a floor under its sliding market.

“There’s a patently clear sign in my mind that they don’t want the market to go down any more,” Mark Matthews, Bank Julius Baer’s head of research for Asia, said at a briefing in Singapore on Tuesday.

China’s blue-chip index, which earlier this month hit the lowest since 2019, lost 0.9% and is down about 6% sofar this month. That’s its sixth straight monthly decline — a record losing streak.

Fed watch

Other market moves were largely subdued as traders remained on guard before of the Fed decision. In Japan, though, the Nikkei ended the month more than 8% higher, its best January performance since 1998.

A summary of opinions from the Bank of Japan’s January meeting show policymakers looking at the likelihood of a near-term exit from negative interest rates and possible scenarios for phasing out the bank’s massive stimulus programme.

Japan government bond yields edged broadly higher in response, with the two-year JGB coupon rising 2.5 basis points to 0.095%, its highest since December 11.

The yen was steady at ¥147.48/$, and was headed for a monthly decline of 4.5% — which would be biggest monthly drop since June 2022.

Oil prices dipped after climbing in the previous session as tensions linger in the Middle East.

Reuters