By Marc Jones and Tom Westbrook
LONDON/SINGAPORE – Stocks and oil prices dipped on Thursday after weak U.S. consumer data rekindled global recession worries, while Japan’s yen reared up again as traders took fresh punts that the Bank of Japan will soon be tightening policy.
A sharp 1.4% slide in European stocks was shaping up to be their toughest day of the year so far and combined with an even worse session for Toyko [.T] left the main all-world indexes facing their first three-day losing streak since mid-December.
Wall Street futures were pointing down more than 0.5% too, while Benchmark 10-year U.S. Treasury yields, which tend to drive global borrowing costs and fall when bond prices rise, were at their lowest since September. [US/][GVD/EUR]
Oil prices dropped back as much as 1% after a 10% rally so far this year, and industrial metal copper skidded from a six-month high that has been fuelled by resource-hungry China abandoning strict COVID-19 restrictions. [MET/L]
“We actually think that the recession and the corporate earnings season that we are just at the start of … are going to weigh on the markets,” Close Brothers Asset Management Chief Investment Officer Robert Alster said, referring to the coming months.
“The retail sales data from the U.S. and places like the UK are going to be a bit weak for a while,” he added. “But never ever underestimate the U.S. consumer, that is an import investment rule. Let’s see a few more months (of data).”
In the currency markets, the yen rose 0.7% to 127.95 per dollar, unwinding some of its drop the previous day when, to the surprise of markets, the Bank of Japan (BOJ) stuck firmly to its approach of ultra-low interest rates.
The BOJ has pursued super-easy policy settings for decades in an attempt to generate inflation and growth, but there are doubts it can keep that up, and traders have been selling Japanese government bonds and buying yen to bet on a shift.
“There’s an intense amount of speculation in the market that now that the January (BOJ) meeting has happened without any changes … that we’ll see something in March,” said Shafali Sachdev, head of FX, fixed income and commodities in Asia at BNP Paribas Wealth Management in Singapore.
April was another possibility, she added, since by then the BOJ would have a new governor. “My guess would be that more speculators would look to build positions going into these meetings.”
Speculators did, however, give some respite to the BOJ in the bond market. After four days of huge BOJ spending to reel 10-year yields back inside the target band of 0.5% either side of zero, the yield held at 0.41% on Thursday. [JP/]
In Europe, there was plenty going on too.
European Central Bank president Christine Lagarde pushed up euro zone bond yields slightly by telling the World Economic Forum’s Davos gathering that the bank would stay the course with rate hikes.
Minutes from last month’s ECB meeting were also due shortly, although Dutch ECB policymaker Klaas Knot, a noted hawk, had also been out saying markets should take more seriously guidance of rates rising in multiples of 50 basis points. [GVD/EUR]
Norway’s crown had ticked higher as its central bank kept its interest rates at 2.75%, but said they were likely to go up in March, while the New Zealand dollar was down more than 1% after the surprise resignation of Prime Minister Jacinda Ardern’s who said she had “no more in the tank”.
S&P 500 futures were down 0.75% as the U.S. open approached and close to breaking below the 50-day moving average.
On Wednesday, the S&P 500 had lost 1.6% after data showed U.S. manufacturing output had slumped last month and retail sales had fallen by the most in a year.
Microsoft’s announcement of 10,000 layoffs and hawkish comments from Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard added to the gloom, with both monetary officials expecting U.S. interest rates above 5% this year.
Fed officials Lael Brainard and John Williams were due to make public appearances later. Netflix, American Airlines and Procter & Gamble were reporting results, while housing starts numbers, weekly jobless claims and the Philadelphia Fed’s Manufacturing Survey will provide more colour on the U.S. economy’s health.
“The decline in retail spending and industrial production adds to the theme of the economy slowing and heading into recession in 2023, and pushes back on the soft-landing narrative dominating markets since January,” said National Australia Bank’s head of market economics, Tapas Strickland.
The dollar slipped into the red after its overnight rise as New York trading loomed. The Australian dollar was still down 0.75% after data showed an unexpected fall in Australian employment last month, but the ECB‘s talkers had lifted the euro back into positive territory at $1.0822.