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Dollar jumps, US stocks oppose global rally

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By Amanda Cooper and Koh Gui Qing

LONDON/NEW YORK (RockedBuzz via Reuters) – The dollar jumped on Tuesday as oil prices fell, as U.S. stocks bucked the rally in global stocks in a week packed with macros that could offer guidance on when and where rates US interest rates could peak.

The MSCI All-World Index fell 0.2%, driven by losses in US equities. The Dow Jones Industrial Average closed with little change, the S&P 500 fell 0.4% and the Nasdaq Composite lost 0.76%.

Losses in US stocks were led by a 12.2% plunge in electric vehicle maker Tesla after it missed Wall Street estimates for quarterly deliveries. iPhone maker Apple Inc fell 3.7% to its lowest since June 2021 following a rating downgrade due to production cuts in China.

The US dollar strengthened ahead of the release of the minutes of the latest Federal Reserve meeting on Wednesday, with expectations signaling that further policy tightening is in store.

A dollar surge sent oil prices tumbling, which were also hurt by concerns about slowing global economic growth, especially after data showed Chinese factory activity eased in December.

“We expect the December FOMC minutes to shed further light on Fed officials’ policy views for 2023. Note that during the meeting, the Committee signaled broad expectations for a substantially higher terminal rate this year,” they said. in a note the analysts of TD Securities.

The dollar index jumped 0.94% to 104.64. [USD/]

The euro was the worst-performing currency against the dollar, with the biggest drop since late September after German regional inflation data showed consumer price pressures eased significantly in December, thanks largely to government measures to curb natural gas bills for households and businesses.

US payroll data this week should show the job market remains tight, while consumer prices in the EU could show some easing in inflation as energy prices ease.

“Energy base effects will lead to a sizable reduction in inflation in major economies in 2023, but stickiness in major components, largely stemming from tight labor markets, will prevent an early policy accommodative ‘pivot’ from the of central banks,” NatWest Markets analysts wrote in a note.

They expect interest rates to exceed 5% in the US, 2.25% in the EU and 4.5% in the UK and stay there for the full year. Markets, on the other hand, are pricing in rate cuts for the end of 2023, with FED futures implying a range of 4.25% to 4.5% by December.

“The thing that makes me nervous about this year is that we still don’t know the full impact of the significant monetary tightening that has taken place in the advanced world,” said Kallum Pickering, senior economist at Berenberg.

“It takes a good year, or 18 months, for the full effect to take effect,” he said.

Central banks have expressed concern about rising wages, even as consumers have struggled to keep pace with the rising cost of living and companies are running out of room to protect their profitability by raising their prices.

However, Pickering said, the job market tends to lag behind the broader economy, meaning there is a risk that central banks will raise interest rates more than the economy can handle.

“What central banks are inducing is essentially over-cyclicality, i.e. they overstimulated in 2021 and triggered an inflationary boom and then overstrengthened in 2022 and triggered a disinflationary recession. want central banks to do,” he said. .

EUROPEAN STOCK JUMP

In the markets, European equities rallied on gains in traditionally defensive sectors such as healthcare and food. Pharmaceutical makers Novo Nordisk, Astrazeneca and Roche were among the biggest positive weights on the STOXX 600, along with Nestle

The STOXX, which lost 13% in 2022, was up 1.2%. The FTSE 100, the only major European index not to trade on Monday, rose 1.4%.

Markets priced in for a while any easing in the US, but were severely blindsided by the Bank of Japan’s upward shock to the bond yield ceiling.

The BOJ is now considering raising its inflation forecast in January to show price growth close to its 2% target in fiscal 2023 and 2024, according to the Nikkei.

Such a move at his next policy meeting on January 17-18 would only increase speculation about an end to the ultra-accommodative policy, which has essentially acted as a basis for bond yields globally.

The policy change strengthened the yen across the board, with the dollar shedding 5% in December and the euro 2.3%.

The yen took a breather on Tuesday, shedding 0.3% against the dollar at 130.895. The dollar earlier hit a six-month low of 129.52 yen.

Oil fell to dollar strength and concern about demand in China, the world’s second largest economy, added to the downside momentum.

A series of surveys showed Chinese factory activity slackened at the fastest pace in nearly three years as COVID infections spread through production lines.

“China is entering the most dangerous weeks of the pandemic,” analysts at Capital Economics warned.

Brent crude lost 4.2% to 82.10 dollars a barrel. [O/R]

(Reporting by Koh Gui Qing in New York and Amanda Cooper in LondonAdditional reporting by Wayne Cole in SydneyEditing by Andrea Ricci and Matthew Lewis)