An optimistic start to the year dissipates
Global stocks were set for their first weekly loss of the year so far, as a rally driven by hopes of China fuelling a global economic recovery was tempered by central bankers vowing to persist with rate hikes.
Some analysts say equities had been showing too much optimism about an economic improvement, as both the U.S. Federal Reserve and the European Central Bank remain resolute about continuing to tighten monetary policy to battle inflation. ECB President Christine Lagarde told the World Economic Forum’s Davos gathering on Thursday that the bank would stay the course with raising interest rates.
Those comments by “usually reliable Fed dove” Brainard in particular are “compounding rate hike fears”, said Tony Sycamore, an analyst at IG.The market expects the Fed’s benchmark interest rate will be a touch below 5% in June, implying just over 50 basis points of additional tightening.The dollar index - which measures the U.S. currency against six peers, including the euro and yen - edged 0.14 higher to 102.17, adding a bit more distance from the 7-1/2-month low of 101.51 reached on Wednesday.
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