Stocks drift lower as early rate cut hopes fade

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File photo: Screens display the trading information for ExxonMobil on the floor of the New York Stock Exchange (NYSE) in New York City, US, on December 9, 2022. REUTERS/Brendan McDermid

London: Global stocks mostly fell on Monday following comments by Federal Reserve boss Jerome Powell which shattered any remaining hopes for a March interest rate reduction.

The drops on Wall Street and Europe follow indices hitting records at the end of last week driven by tech stocks following stellar earnings reports from Meta and Amazon.

“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,” said market analyst Patrick O’Hare at Briefing.com.

But 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.”

In an interview that aired Sunday, US Federal Reserve Chairman Jerome Powell 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.”

Still, Wall Street ended Friday with more big gains for all three main indexes, pushing the S&P 500 to a fresh record thanks to a rally in tech giants Meta and Amazon in the wake of strong earnings.

The advance in New York was also fuelled by 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.

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