US stocks gain after Fed members’ blunt comments

U.S. stocks erased earlier gains after two Federal Reserve members said they expected policy rates to exceed 5 percent in 2023, dampening investors’ hopes for less restrictive monetary policy.

Wall Street’s blue-chip S&P 500, which rose as much as 1.4 percent on Monday, closed 0.1 percent lower on Monday, with pharmaceutical stocks among the decliners. The tech-heavy Nasdaq Composite ended up almost 2.3 percent, up 0.6 percent, while Tesla and chipmakers Nvidia and Advanced Micro Devices rose more than 5 percent.

Both indexes pared gains in afternoon trade after comments by the presidents of the US central bank’s San Francisco and Atlanta branches that the fed funds rate needed to rise above 5 percent to slow inflation. Atlanta Fed President Raphael Bostic said the interest rate will remain above that watermark “for a long time.”

The stark comments on Monday showed that average hourly earnings of workers in December rose 4.6 percent year-on-year, compared with 4.8 percent the previous month, according to U.S. government data released Friday. upward pressure on inflation. The world’s largest economy added 223,000 jobs in the final month of 2022 – more than economists expected, but smaller than the 256,000 increase in November.

As a result, the yield on the two-year Treasury note, which is sensitive to interest rate expectations, fell by a quarter of a percentage point, while government bonds rose. On Monday, the note’s yield fell another 0.05 percentage points to 4.20 percent. Bond yields move inversely to prices.

“The wages data was the story of the ‘all-things rally’ in bonds and stocks on Friday,” said Charlie McElligott, equity derivatives strategist at Nomura, “as most [Fed] calls for a slowdown in wage growth to accompany disinflationary progress elsewhere to signal significant progress toward price stability objectives”.

The Fed raised interest rates last year from near zero to between 4.25 and 4.5 percent. Interest rate markets are about 75 percent likely to raise borrowing costs by a quarter of a percentage point when the central bank meets at the end of January. US inflation data released on Thursday is expected to show prices rose 6.6 percent year-on-year in December, down from a 7.1 percent increase in November. That would mark the slowest pace since October 2021. On Monday, San Francisco Fed President Mary Daley backed the idea of ​​a quarter-point rate hike at the end of the month.

The index, which tracks the dollar’s strength against a basket of six peers, fell 0.7 percent on Monday as traders continued to bet the Fed would raise rates more slowly in the first few months of 2023. The currency weakened by more than 8 percent. last three months.

“The US economy remains resilient, but in a downward trend,” said Florian Ielpo, head of macro at Lombard Odier Asset Management. Despite this, the slowdown in inflation in Europe and the relaxation of China’s strict zero-Covid policies meant that “the direction for the riskiest asset classes is the same – globally”.

Europe’s regional Stoxx 600 index rose 0.9 percent, adding to last week’s 4.2 percent gain, with technology and energy stocks among the top performers. London’s FTSE 100 index rose 0.3 percent.

Germany’s DAX index rose 1.3 percent after output in the country’s manufacturing, energy and construction sectors rose 0.2 percent between October and November, raising hopes for a softer-than-feared economic recession in the single currency zone.

Eurozone inflation eased to single digits in December, with data released late last week showing the headline rate at 9.2 percent after annual price growth topped 10 percent in the previous two months.

Figures released on Monday showed unemployment in the region fell to a 24-year low in November, but increased pressure on the European Central Bank to keep raising interest rates.

In Asia, Hong Kong’s Hang Seng index rose 1.9 percent, while China’s CSI 300 index of shares listed in Shanghai and Shenzhen rose 0.8 percent.

Brent oil, an international oil indicator, increased by 1.4 percent and reached the level of $79.65/barrel, with oil prices rising due to expectations of increased demand. Prices for the Dutch TTF, the European gas contract, rose 9.9 percent to 74.40 euros per megawatt hour on Monday.

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