New York (AFP) – Stock markets mostly fell as investors continued to roll back expectations of lower interest rates, even as they juggled conflicting comments from central bankers and rising tensions in the Middle East.
Oil initially rose before ending mixed amid concerns about economic growth.
“Stocks are lower across the board on Tuesday and the key driver is the revaluation of rate cut expectations,” said Kathleen Brooks, research director at XTB.
New York was closed Monday for Martin Luther King Day and US stocks retreated Tuesday, as markets weighed mixed results from large banks alongside remarks by Federal Reserve Governor Christopher Waller.
Waller, a noted dove, said the Fed should be able to cut interest rates in 2024, adding that rates should be “lowered methodically and carefully.”
Meanwhile, ECB governing council member Robert Holzman said on Monday in Davos that there is a possibility of no rate reductions this year, pushing back against expectations of an April cut, noted Fawad Razaqzada, analyst at FOREX.com.
London, Paris, Frankfurt all closed lower.
Equities in Europe and North America soared at the end of 2023 as softening inflation led investors to expect the Fed was preparing to reverse more than a year of hikes to US interest rates — and that the European Central Bank and Bank of England could soon follow.
Expectations were once that central banks could cut rates as soon as March, but hopes faded in January with Fed officials saying they were keen to keep rates steady until inflation is firmly back under their target.
“The weakness we saw in European markets yesterday has carried over as the continued pushback on rate cut expectations from central banks has served to boost the US dollar as well as undermine confidence in risky assets, as concerns over the economic outlook grow,” said Michael Hewson, chief market analyst at CMC Markets.
While inflation is on a general downward path, there is a worry that it could pop back up, particularly with tensions in the oil-rich Middle East putting key trade routes at risk.
The United States and Britain have in recent days launched strikes against Yemen’s Huthis in retaliation for the Iran-backed rebels’ attacks on Red Sea shipping in what they say is solidarity with Gaza.
The strikes have been met with warnings of retaliation from the group, which on Monday hit a US-owned cargo vessel with a missile.A Greek-owned cargo ship was also hit by a missile on Tuesday.
Shell has suspended Red Sea transits indefinitely and Qatar said that shipments of LNG would be delayed due to the unrest.
Oil prices rose initially on fears of a wider Middle East conflict, but then retreated over demand worries as the global economy struggles.
Some fundamentals continued to be positive.
China’s Premier Li Qiang said on Tuesday his country’s economy was expected to have grown by a stronger-than-expected 5.2 percent last year.
And Goldman Sachs said fourth quarter profits jumped 58 percent from a year ago to $1.9 billion on strong equity trading revenues
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– Key figures around 2150 GMT – New York – Dow: DOWN 0.6 percent at 37,361.12 points (close) New York – S&P 500: DOWN 0.4 percent at 4,765.98 (close) New York – Nasdaq: DOWN 0.2 at 14,944.35 (close) London – FTSE 100: DOWN 0.48 percent at 7,558.34 (close) Paris – CAC 40: DOWN 0.2 percent at 7,398.00 (close) Frankfurt – DAX: DOWN 0.3 percent at 16,571.68 (close) EURO STOXX 50: DOWN 0.2 percent at 4,446.51 (close) Tokyo – Nikkei 225: DOWN 0.8 percent at 35,619.18 (close) Hong Kong – Hang Seng Index: DOWN 2.2 percent at 15,865.92 (close) Shanghai – Composite: UP 0.3 percent at 2,893.99 (close) Euro/dollar: DOWN at $1.0879 from $1.0952 on Monday Dollar/yen: UP at 147.18 yen from 145.77 yen Pound/dollar: DOWN at $1.2635 from $1.2737 Euro/pound: UP at 86.07 pence from 85.98 pence Brent North Sea Crude: UP 0.2 percent at $78.29 per barrel West Texas Intermediate: DOWN 0.4 percent at $72.40 per barrel burs-gv/rl/bys/caw
