Marketmind: Trick or treat?

1 min read
FILE PHOTO: The Federal Reserve building is pictured in Washington, DC

A look at the day ahead in European and global markets from Anshuman Daga

There’s a sense of cheer among investors before the Fed’s mid-week rate decision as markets seem to be pricing in an expected treat from the U.S. central bank.

Risk-on appetite is gradually coming back as global stocks flirt with their strongest levels in just over a month while the mighty dollar slips from a one-week high.

The Fed is set to raise rates by 75 basis points for the fourth straight time, bringing the target overnight lending rate to a 3.75%-4.00% range. But U.S. central bankers are likely to intensify a debate over when to downshift to smaller interest rate hikes to avoid sending the world’s biggest economy into a tailspin.

Analysts at BlackRock Investment Institute are, however, still underweight on stocks as they see central banks on a path to overtighten policy.

And in Europe, there’s little sign that inflation is peaking.

Consumer price growth in the 19 countries sharing the euro accelerated to 10.7% last month from 9.9% a month earlier, far outstripping expectations in a Reuters poll for 10.2%.

The broadening price pressures point to likely more interest rate increases from the European Central Bank after it raised rates by 75 basis points despite highlighting concerns about the economy.

“We think the ECB is still raising rates into a recession triggered by the energy shock and its hikes – and it will only stop once it sees the scale of economic damage caused,” said the analysts from BlackRock Investment Institute.

On Tuesday, business surveys in Asia showed that the region’s factory output weakened in October as global recession fears and China’s zero-COVID policy hurt demand, adding to persistent supply disruptions and darkening recovery prospects.

Down Under, the Reserve Bank of Australia stuck with a 25 basis points rate hike as widely expected, while revising up its inflation outlook.

On the corporate front, BP is in focus as it reports results. On Monday, U.S. President Joe Biden called on oil and gas companies to stop ‘war profiteering’ and threatened a windfall tax on their record profits as he battles high pump prices with elections coming in a week.

Key developments that could influence markets on Tuesday:

Fed kicks off two-day meeting

U.S. Oct ISM

Europe earnings: BP, Rentokil

U.S. earnings: Pfizer, Prudential

(Reporting by Anshuman Daga; Editing by Muralikumar Anantharaman)