Take a look at the market ahead from Julien Panthas.
European Central Bank President Christine Lagarde has, for the first time, openly acknowledged what investors have been betting on for some time now: Negative interest rates, an eight-year eurozone feature, are likely to move towards the end of the summer.
With inflation in the euro zone hitting a record 7.4% and the market value of money rising by more than 100 basis points by the end of 2022, the candid tone of Lagarde’s announcement was probably the most surprising news for investors.
The yield on government bonds has strengthened, the euro has risen, and Lagarde will have the opportunity to elaborate further in a speech in Davos following a new batch of indicators of European business activity.
But all eyes are now on the US Federal Reserve, with high expectations that the minutes of the May meeting, released on Wednesday, will show a commitment to toughening inflation quickly.
Chair Jerome Powell spoke later Tuesday and there is no doubt investors will be hoping for a new update on his intentions.
Central banks have been blamed for much of the recent market turmoil across the stock market, and many strategists believe that only a dovish policy change could turn the table in their favor.
Blackrock downgraded equities in the developed market from “overweight” to “neutral” but added that a “dovish pivot by the Fed” would make its analysts consider increasing exposure to the stock again.
Meanwhile, stock markets appear to be gearing up for a rough session on Tuesday as European and US futures trade deep red, as well as cash transactions in Asia, closing in negative territory.
The tumultuous last session of Wall Street has gradually created a risk-free attitude and Nasdaq futures have now come down to close to 2% and traders have attributed the mood swing to an earnings warning from Snap.
Key developments that need to give Tuesday’s markets further direction:
– May factory activity in Japan grows at the slowest pace in 3 months – Flash PMI
– China’s property market problems are expected to worsen in 2022
– Index of Purchasing Managers (PMI) across Europe
– Federal Reserve Chair Jerome Powell gives a welcome address to the National Center for American Indian Enterprise Development (NCAIED).
– Opening remarks by ECB President Christine Lagarde at the “Europe’s Global Roll” dinner during the World Economic Forum in Davos, Switzerland
– Riksbank Financial Stability Report 2022
– The Federal Reserve Bank of Philadelphia releases the Non-Manufacturing Business Outlook Survey for May
(Reporting by Julien Panthas; Editing by Beach Chatterjee)