Be cautious about stocks ahead of Central Bank decisions

By Claude Chenjou

PARIS (Reuters) – Wall Street is expected to fall on Tuesday and European stock markets are also in the red mid-session, with investors opting for caution ahead of monetary policy announcements this week, including from three major central banks. The US Federal Reserve (FED) on Wednesday.

New York index futures on Wall Street were down 0.36% for the Dow Jones, 0.22% for the Standard & Poor’s 500 and 0.37% for the Nasdaq.

In Paris, the CAC 40 was down 0.4% at 7,053.53 around 12:35 GMT. In Frankfurt, the Dax index fell by 0.46%, and in London, the FTSE fell by 0.74%.

Pan-European FTSEurofirst 300 index lost 0.66%, Eurozone EuroStoxx 50 index lost 0.4% and Stoxx 600 lost 0.64%.

During the entire month, the CAC 40 gained 8.93% and the Stoxx 600 gained 6.23% at this stage.

On Tuesday, the Fed begins a two-day monetary policy meeting, after which it is expected to raise interest rates by 25 basis points to 4.50-4.75%. Uncertainty remains at the peak rate, currently valued by the market at 4.90%, while several Bank of America officials recently estimated that it would need to exceed 5% to sufficiently curb inflation.

“What markets will be looking at is any rhetoric about where interest rates are headed at this point, especially if central banks suggest that inflation remains a key concern and that rates will continue to rise for much longer.” Interactive Investor.

After the Fed, the European Central Bank (ECB) and the Bank of England (BoE) will make their decisions on Thursday. Markets expect rates to rise by 50 basis points for these two central banks. Eurozone inflation figures expected on Wednesday could challenge that scenario, with consumer prices accelerating again in Spain and France in January.

In addition to concerns about inflation, there are worries about the economic situation, with Germany virtually guaranteed to enter recession next quarter. The Eurozone economy recorded an unexpected 0.1% growth in the fourth quarter, and the International Monetary Fund (IMF) is slightly more optimistic for 2023, expecting global GDP to grow by 2.9% this year.

WALL STREET VALUES WILL BE OFFERED

Caterpillar fell 3.3% in the market after it reported lower-than-expected quarterly profit on Tuesday, a reliable barometer of the global economy as rising production and transportation costs put pressure on the margins of the world leader in construction machinery.

VALUES IN EUROPE

In the main divisions of the European rating, all other sectors are red, except for banks (+0.42%). Among the sharpest decliners were basic resources (-2.05%) and new technologies (-0.79%), citing the prospect of higher interest rates and fears of a worsening economy.

In Paris, Societe Generale (+2.01%) leads the CAC 40, while STMicroelectronics (-2.57%) is at the back of the pack.

Corporate results are also buoying exchanges, notably UBS, which is yielding 2.95%, as the Swiss bank forecast an “uncertain” year on Tuesday despite better-than-expected net profit for 2022. Its rival UniCredit, up 10.77%, comes from the announcement of a payment plan of 5.25 billion euros to shareholders based on 2022 results.

CHANGES

Although the dollar rose 0.15% against a basket of international currencies, it was on track to fall 0.9% for the whole of January, the fourth month in a row of decline.

The euro, which has gained nearly 1% this month, is trading near a nine-month high at $1,083 (-0.13%) amid lower energy prices in the community bloc.

RATE

In Europe, bond yields are flat after Eurozone GDP numbers: the ten-year German Bund, the benchmark for the entire region, is at 2.30%.

The yield on Treasury bonds with the same duration in the United States fell by around 1.5 points to 3.53% while waiting for the announcements of the Fed.

OIL

Oil prices hit a two-week low on Tuesday ahead of an expected status quo on Wednesday’s next interest rate hike and production quotas from OPEC+.

By 12:15 GMT, Brent was down 0.9% at $84.14 a barrel at $83.77, its lowest since Jan. 13. US light oil (West Texas Intermediate, WTI), which reached a low level of $76.70 in the session since January 11, decreased by 1.05% to $77.08 at the same time.

(Writing by Claude Chendjou, Editing by Kate Entringer)