Global stock indices dipped for the second consecutive session on Monday, extending losses from recent record highs as investors braced for the release of U.S. inflation data later in the week. The upcoming data release is anticipated to have a significant impact on the Federal Reserve’s decision-making regarding interest rates.
Despite hitting multiple record highs earlier this year, stocks faced downward pressure on Friday following a mixed U.S. payrolls report. However, this report did little to alter market expectations for the Fed’s rate-cutting plans, which are widely anticipated to begin in June.
Investors are eagerly awaiting the release of U.S. inflation data on Tuesday, which will be presented in the form of the consumer price index (CPI). Projections suggest a monthly increase of 0.4% and an annual rise of 3.1%.
In Monday’s trading, the Dow Jones Industrial Average managed to eke out a modest gain of 46.97 points, rising by 0.12% to reach 38,769.66. Conversely, the S&P 500 retreated by 5.74 points (0.11%) to close at 5,117.95, while the Nasdaq Composite declined by 65.84 points (0.41%) to settle at 16,019.27.
Commenting on the market dynamics, Brian Nick, senior investment strategist at The Macro Institute in New York, highlighted the potential impact of the CPI data on stock performance. He noted the possibility of stocks facing pressure in the short term if the CPI data exceeds expectations, potentially leading to further yield curve inversion and delaying market corrections.
As investors await the release of crucial U.S. inflation data, concerns about emerging weakness in current economic activity have come to the forefront. U.S. Treasury yields saw a slight increase ahead of the data release, with the benchmark 10-year notes ticking up by 1 basis point to 4.098%, compared to 4.088% late on Friday. Similarly, the 2-year note yield, often seen as an indicator of interest rate expectations, rose by 5 basis points to 4.536%.
The Federal Reserve is set to release its next policy statement on March 20, and market sentiment suggests a high probability that rates will remain unchanged. According to CME’s FedWatch Tool, expectations for a rate cut currently stand at only 3%.
Recent comments from Fed Chair Jerome Powell and European Central Bank policymakers have fueled expectations of rate cuts starting this summer. Projections for a rate cut of at least 25 basis points at the June meeting are now above 70%.
MSCI’s global stocks gauge fell by 0.33% to 768.75 points, reflecting a cautious stance among investors. In Europe, the STOXX 600 index closed down by 0.35%, while the FTSEurofirst 300 index ended the day lower by 0.32%, weighed down by declines in the technology sector.
The dollar index saw a modest gain of 0.17% to reach 102.85, with the euro down by 0.12% at $1.0924. Sterling also weakened by 0.37% to $1.281 against the dollar.
Meanwhile, the Japanese yen strengthened by 0.09% against the greenback, trading at 146.94 per dollar. Earlier in the day, Reuters reported a growing number of Bank of Japan policymakers considering an end to negative interest rates this month.
In Japan, recent data showed that the country avoided a recession, with economic growth revised up to an annualized 0.4% for the December quarter.
Turning to crude oil, prices were mixed, with U.S. crude settling down by 0.1% at $77.93 a barrel, while Brent settled at $82.21 per barrel, up by 0.16% on the day. Concerns about disruptions to supply due to fighting in the Middle East were somewhat alleviated, while weak demand signaled by Chinese data and an increase in U.S. refining activities limited any significant selling pressure.
In the cryptocurrency market, bitcoin experienced a notable gain of 5.37% to reach $72,090.50, after hitting a record high of $72,901.94.