Nervous stocks decline due to upcoming data and Red Sea tensions

LONDON (Reuters) – Stock futures fell on Wall Street on Monday as investors turned nervous ahead of a series of economic data this week that will test market bets on interest rate cuts from major central banks and the state of the global economy next year. .

At 0722 EST, the Dow e-minis 1YMcv1 was down 0.3%, the S&P 500 e-minis EScv1 was down 0.4%, and the Nasdaq 100 e-minis NQcv1 was down 0.5%.

Attacks on commercial ships in the Red Sea on Sunday threatened to reignite investor concerns about the widening war between Israel and Hamas, potentially complicating the outlook for a rally that saw US stocks rise to a new closing high for the year last week.

“So far, this situation appears to be quite contained. But the ramifications and risks surrounding this cannot be underestimated – the risks to oil if Iran is involved, and obviously that could have significant knock-on effects on supply chains. Paul Waters said, Head of European Credit Research at Standard & Poor’s Ratings: “Inflation and Broad Financial Markets.”

Also top of mind for analysts and traders was the US November employment report due on Friday, which should be strong enough to support a soft landing scenario, but not so strong as to threaten the opportunity for easing. The average forecast is for jobs to rise by 180,000 jobs, keeping unemployment steady at 3.9%.

Wage growth remains above the Fed’s target, said Bruno Schneller, managing director at INVICO Asset Management. If the upcoming data is in line with expectations, it could mean the end of interest rate hikes this year and a shift to cuts in 2024.

“Given the upcoming US presidential election in 2024, the Fed will likely avoid actions that could be seen as favoring any candidate, leading us not to expect any major surprises and to continue the Fed’s data-driven approach,” Schneller said.

Futures now indicate a 60% chance the Fed will ease monetary policy as soon as March, up from 21% a week ago, and cuts are priced at around 135 basis points for all of 2024.

The turnaround in Treasuries has been nothing short of stunning, with two-year yields falling by 41 basis points in just one week, the best performance since the mini-crisis in the US banking sector in March.

So it was no surprise that some profit-taking appeared on Monday and pushed 10-year yields to 4.25%, but still well below October’s high of 5.02%.

Bullish for EM

The decline in Treasury yields in turn pulled the rug out from under the dollar, especially against the yen, where it fell 1.8% last week and was last low at 146.62.

Speculation about the eventual unwinding of the Bank of Japan’s overly accommodating policies has increased pressure on carry yen positions and could take the Japanese currency back to its July highs around 138.00. The dollar rose 0.2% against a basket of currencies =USD.

The euro fell 0.1 percent to $1.0868. It has also risen recently, but suffered a reversal last week when surprisingly weak inflation data led markets to price in a March interest rate cut by the European Central Bank.

Bundesbank President Joachim Nagel, always the hawk, hit back at the dovishism in an interview over the weekend. But with inflation falling so quickly, the ECB will have to ease interest rates just to prevent real interest rates from rising.

ECB President Christine Lagarde will have her own opportunity to comment in a speech and Q&A later on Monday.

The decline in yields was a boon for non-yielding gold, which hit a record high of $2,111.39 an ounce before falling to $2,066.73.50 an ounce by 1232 GMT.

Oil prices fell amid doubts about OPEC+’s ability to maintain planned production cuts. This is confirmed by the fact that US oil production has reached record levels of more than 13 million barrels per day, and the number of drilling rigs is still rising.

The attacks on shipping in the Red Sea provided only fleeting support, and Brent crude fell 43 cents to $78.45 a barrel, while US crude fell 41 cents to $73.66 by 1233 GMT.

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