Stocks stuck in mud as early rate cut hopes fade
Global stocks were stuck in the mud on Monday following comments by Federal Reserve boss Jerome Powell which shattered any remaining hopes for a March interest rate reduction.
After the end of last week saw indices hitting records amid stellar earnings reports from the likes of tech behemoths Meta and Amazon, Wall Street was drifting into the red while main European markets were flat at the closing bell.
As Chris Beauchamp, chief market analyst at online trading platform IG, put it: "It looks like the relentless optimism seen so far on Wall Street is finally beginning to collide with reality, delivering a 400-point slump on the Dow and knocking the S&P 500 off course from its march to 5,000."
Market analyst Patrick O'Hare at Briefing.com said: "There has been a little giveback for the broader market this morning, as market participants deliberate over stretched valuations, rising rates, and budding scepticism about the market rally continuing largely unabated."
He noted that the dip "hardly suggests there is a rush to sell stocks", with investors rather "waiting on a more precise temperature reading in today's price action."
As Europe's main indices all ended flat, the Dow lay 0.9 percent adrift at 38,293.41 points mid-session with the S&P 500 and the tech-heavy Nasdaq off more than half of one percent.
In an interview that aired Sunday, Powell had said the bank wants to see more data before beginning to cut interest rates.
The "danger of moving too soon is that the job's not quite done, and that the really good readings we've had for the last six months somehow turn out not to be a true indicator of where inflation's heading", he told the CBS news programme "60 Minutes".
"The prudent thing to do is to... just give it some time and see that the data continue to confirm that inflation is moving down to two percent in a sustainable way," he added.
The interview was conducted before the latest US jobs report was released, which showed the labour market and world's biggest economy remained robust despite borrowing costs sitting at two-decade highs.
The data gives little room for the Fed to cut rates even as inflation comes down.
The chances of a March cut in US interest rates plunged to 20 percent after the jobs reading, down from around 40 percent Thursday, according to Bloomberg News. They had been about 80 percent at the start of the year.
"Initially, markets were anticipating six cuts starting in March," said Stephen Innes at SPI Asset Management.
"However, Powell's recent remarks suggest such an early move was improbable. Combined with a robust January jobs report, hopes of an early spring adjustment have moved from improbable to impossible."
Friday's rise on Wall Street on a tech rally came amid optimism that the economy is not likely to fall into recession, while rates are also still expected to come down later this year.
Most of Asia struggled again, however, with Hong Kong and Shanghai extending a sell-off fuelled by growing concerns about the Chinese economy.
- Key figures around 1645 GMT -
New York - Dow: DOWN 0.9 percent at 38,293.41 points
New York - S&P 500: DOWN 0.6 percent at 4,929.41
New York - Nasdaq Composite: DOWN 0.6 percent at 15,543.13
London - FTSE 100: FLAT at 7,612.86
Paris - CAC 40: FLAT at 7,589.96
Frankfurt - DAX: DOWN less than 0.1 percent at 16,904.06
EURO STOXX 50: DOWN 0.1 percent at 4,649.44
Tokyo - Nikkei 225: UP 0.5 percent at 36,354.16 (close)
Hong Kong - Hang Seng Index: DOWN 0.2 percent at 15,510.01 (close)
Shanghai - Composite: DOWN 1.0 percent at 2,702.18 (close)
Euro/dollar: DOWN at $1.0731 from $1.0788 on Friday
Dollar/yen: UP at 148.72 yen from 148.38 yen
Pound/dollar: DOWN at $1.2523 from $1.2631
Euro/pound: UP at 85.65 pence from 85.40 pence
West Texas Intermediate: DOWN 0.7 percent at $71.76 per barrel
Brent North Sea Crude: DOWN 0.4 percent at $77.00 per barrel
burs/cw/rlp
Jensen--RTC
