Marketmind: Seeing through another shock
A look at the day ahead in U.S. and global markets from Mike Dolan.
Brazil’s weekend political shock reminds world markets of fragile geopolitics, but investors more broadly appear happier to stick with a new year narrative of recovery from a dire 2022.
Brazil, the world’s 12th biggest economy, was jolted on Sunday after supporters of former far-right President Jair Bolsonaro stormed key government buildings, echoing the Jan. 6 2021 Capitol riots in Washington.
Days after his inauguration, leftist President Luiz Inacio Lula da Silva announced a federal security intervention in Brasilia until Jan. 31. Brazilian stocks listed overseas dropped more than 2% on Monday, but investors will closely watch the likely volatile open of currency and bond markets there later.
The alarming developments failed to derail a more upbeat start to the first full trading week of the year in other major markets, however, with a positive take on Friday’s U.S. employment report for December and China’s re-opening of its borders after years of zero COVID restrictions.
Asian and European bourses climbed and U.S. futures were higher ahead of their 5th session of 2023 – reminding some of an oft-cited ‘five day rule’ which suggests U.S. stocks tend to gain for the year ahead if they are net positive after 5 days.
Although the U.S. payrolls report showed labour markets remaining tight, readings on wage growth and a surprisingly sharp downturn in service sector business confidence last month encouraged those betting on an early peak in Federal Reserve interest rates this year.
Although 10-year U.S. Treasury yields nudged up on Monday, they hit their lowest in three weeks after the jobs data and service industry reports. Fed futures see about another 60 basis points of Fed hikes to just under 5% by mid-year and then a half point of rate cuts over the second half of 2023.
Fed chair Jerome Powell speaks on Tuesday but the big data release of this week is Thursday’s consumer price report. The fourth quarter earnings season then kicks off in earnest on Friday with many of the big banks reporting.
Goldman Sachs will start cutting thousands of jobs across the firm from Wednesday, two sources familiar with the move said on Monday, as it prepares for a tough economic environment in the year ahead.
The dollar, meantime, bore the burnt of Friday’s market shift – most notably against China’s yuan on Monday amid optimism about the COVID reopening news. The offshore yuan hit its highest since August.
Shares of listed Chinese companies that count Ant Group as a major shareholder also surged on Monday after announcements that Ant founder Jack Ma is giving up control of the fintech giant following an overhaul.
The euro jumped to its highest in a week, as traders contrasted the U.S. business readings and Fed hopes with more positive signs of a shallow recession in the euro zone and more hawkish noises from the European Central Bank.
The gap between positive euro zone economic surprise indices and negative U.S. equivalents is now at its widest since June.
Oil prices ticked higher on Monday, but the positive signal for inflation watchers is that year-on-year Brent crude prices have slipped into negative territory for the past week.
Diaried events and data releases that may provide direction to U.S. and world markets later on Monday:
* U.S. Nov consumer credit, Canada Nov Building permits
* Atlanta Federal Reserve President Raphael Bostic speaks. Bank of England Chief Economist Huw Pill speaks in NYC
* U.S. corporate earnings: Jefferies
(By Mike Dolan, editing by Emelia Sithole-Matarise; Twitter: @reutersMikeD)