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Global Stocks Decline: BoC, BoE, RBA Battle Inflation

Before a busy day of earnings that will give investors an idea of how major corporations are coping with an economic downturn and increased interest rates, global stocks and stock futures declined on Wednesday. 

On Wednesday, gold prices remained stable, keeping close to a 9-month high due to hopes that the U.S. Federal Reserve would raise interest rates more slowly. 

As Canada raised its key interest rate in the final quarter of the fiscal year 2022, inflation in Australia increased to a new 32-year high of 7.8%.

As a result of weak corporate earnings and the continuous inversion of short- and long-dated Treasury yields, a sign of economic downturns, global equities markets fell on Wednesday. 

However, Wall Street’s key indexes dramatically reduced their losses, indicating that many investors now think that a downturn paired with rising unemployment will force the Federal Reserve to scale back its rapid monetary tightening and soon drop interest rates.

Short-dated Treasury yields have been inverted for a while or higher than longer-dated public debt. On Wednesday, the yield curve for 10-year bonds and three-month bills flattened, although it remained incredibly inverted at -123.5 basis points.

According to economists, every recession has been preceded by some form of yield curve inversion. 

The Fed’s overnight borrowing rate, which is currently between 4.25 and 4.5%, is “restrictive” and impeding growth, which might result in significant job losses in the coming months and force the U.S. central bank to lower interest rates by the middle of the year.

According to research, for two out of every three Americans, paying their bills comes before saving for the future.

The American central bank will make some adjustments, but more is needed to deter the Fed from following its stated directives. Bottom line: Inflation is the adversary, and the labor market is the cause. 

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Poor Corporate Earnings

Corporate America also foresaw impending disaster. Concerns about slowing growth were exacerbated by Boeing’s disappointing results on Wednesday amid persistent supply chain problems.

Microsoft Corporation

Microsoft Corp. (MSFT.O) urged its customers to be cautious about spending in an uncertain economy with a gloomy outlook late Tuesday.

Deflating results from Microsoft Corporation (NASDAQ: MSFT) weighed on sentiment prior to the U.S. session. 

The software industry major reported its worst sales growth in six years and warned that things could get worse, which caused the company’s stock to decline in pre-market trade.

In the three months ending in December, revenue increased by only 2% year over year to $52.7 billion, falling short of the average forecast of $53.12B. At $2.32 per share, earnings somewhat exceeded estimates, but at $16.4B, they were still down 12% on the year.

Given its extensive influence across many facets of the economy, Microsoft’s financial results have enormous ramifications for the rest of the U.S. stock market. 

They weren’t particularly stunning, but they did contribute to the perception that the US economy will struggle this year. Earlier in the week, the corporation announced the loss of about 10,000 jobs. 

Tesla, Inc.

After the markets close, Tesla, Inc. (NASDAQ: TSLA), which releases its most recent quarterly earnings, is anticipated to come into focus. 

Despite a slowdown in vehicle deliveries, Elon Musk’s electric car maker is anticipated to report record earnings for the fourth quarter of 2022.

Boeing Co. (NYSE: BA), AT&T Inc. (NYSE:T), and International Business Machines (NYSE:IBM) are among the other businesses scheduled to release earnings today. 

Stock Markets & Futures Fall

Wall Street shut down with little change. Following more than 2% losses, the Nasdaq Composite fell by 0.18%, the S&P 500 fell by 0.02%, and the Dow Jones Industrial Average increased by 0.03%.

Stocks Market and Future Fall

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Trade in European markets sputtered as signs of a better economic outlook in the eurozone fueled concerns about more rate hikes.

After trading substantially lower for the majority of the day, the broad Pan-European STOXX 600 index (.STOXX) fell 0.29%, while MSCI’s measure of global stock performance edged up 0.05% to close at a new five-month high.

The fastest tightening of monetary policy since the 1980s has roiled the markets.

Data showing German business morale brightened in January did little to push the single currency higher for now. 

Germany’s Ifo institute said its business climate index rose to 90.2, in line with the consensus, according to analysts, and up from 88.6 in December.

MSCI’s broadest index of Asia-Pacific shares outside Japan hit a seven-month high in Asia. Trading volume was depressed as Chinese and Taiwanese markets were still closed for the Lunar New Year holiday.

Futures are pricing in a 94.7% probability of a 25 bps hike when policymakers end a two-day meeting on Feb. 1. 

The yield on 10-year Treasury notes was down 2.2 basis points to 3.445%, well below the Fed’s projection that its target rate will stay above 5% into next year. 

Crude Oil Prices

In response to Tuesday’s disappointing economic news, official data revealed a smaller-than-expected increase in U.S. crude stockpiles, which contributed to a relatively unchanged final price for oil. 

Brent crude futures decreased by one cent to settle at $86.12 per barrel, while West Texas Intermediate (WTI) crude futures decreased by two cents to settle at $80.15 per barrel.

While this was happening, the oil group OPEC+ and the chance that production would remain unchanged when it met the following week were the two main topics in the energy markets. 

By 06:55 ET, the Brent contract had risen by 0.10% to $86.22 per barrel, and the U.S. oil futures had traded 0.22% higher at $80.31 per barrel. 

Gold and Silver

As the dollar dropped and investors maintained a tight eye on a spate of incoming U.S. economic data that could have an impact on the Fed’s policy meeting next week, gold reversed course to nudge up. As of 00:20 GMT, spot gold was unchanged at $1,936.39 per ounce. 

On Tuesday, prices reached their highest point since late April 2022. U.S. gold futures ended the day at $1,942.60 per ounce, up 0.4%.

According to Swiss customs data released on Tuesday, gold exports from Switzerland to nations like China, Turkey, Singapore, and Thailand increased to multi-year highs in 2022.

As a result of operations being paused at its Brucejack facilities in Canada following a fatality, Australia’s Newcrest Mining reported that gold production decreased 2.8% in the second quarter compared to the first, falling short of analyst estimates.

Spot silver prices declined by 0.4% to $23.57 for an ounce, platinum dropped by 0.3% to $1,053.43, and palladium dropped by 0.2% to $1,739.68.

UK Inflation Fight

Britain’s manufacturers unexpectedly reduced their prices in December by the most since April 2020, welcome news for the Bank of England, which is weighing up how much higher it needs to take interest rates to fight soaring inflation.

On Wednesday, the Office for National Statistics said output prices fell by 0.8% in December from November.

Input prices paid by factories fell by 1.1% in month-on-month terms, also the biggest drop since April 2020, when much of Britain’s economy shut down at the start of the coronavirus crisis, the ONS said.

Britain’s main inflation measure – the consumer prices index – fell in November and December, but at 10.5%, it is more than five times the BoE’s target.

The central bank is watching for signs of future inflation pressure. Investors expect the BoE to raise interest rates for the 10th time in a row on Feb. 2, with most pricing in another half-percentage-point increase to 4%. 

Bank of Canada Raises Rate

The Bank of Canada has raised its benchmark interest rate again to 4.5 percent. Economists widely expected the move as the bank tries to wrestle record-high inflation into submission. 

It’s the eighth time in less than a year that the bank has hiked its trendsetting rate — a move that will make borrowing money more expensive.

But at one-quarter of a percentage point, it’s also the smallest hike since March, and thus a sign that the bank may be done with hiking rates for the next little while.

The Bank of Canada signaled it would likely halt further hikes after lifting its key interest rate. The Canadian dollar fell 0.11% versus the greenback at 1.34 per dollar after the central bank’s outlook.

Bank of Canada nudges key interest rate to 4.5%

The bank said as much at a news conference following the announcement, with governor Tiff Macklem using the word “pause” to describe the bank’s monetary policy strategy at this moment.

Australia Inflation, Highest in 3 Decades

Inflation in Australia rose to a new 32-year high of 7.8% in the final quarter of the fiscal year of 2022, rising at its steepest pace since March 1990.

Australia' annual CPI

According to the Australian Bureau of Statistics, the annualized figure of a rise in consumer prices is backed by higher prices in food, automotive fuel, and new residential construction. 

Prices rose the most for domestic and international travel costs, which rose by 13.3% and 7.6%, respectively.

AUS/USD

AUS/USD 

The Australian dollar hit a five-month high as rising inflation data bolstered the case for another rate increase from the Reserve Bank of Australia (RBA) next month. 

The Australian dollar surged to $0.7123 after the latest inflation data. Australia’s currency is up 1.6% this week and is poised for its biggest weekly gain in more than two months.

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Author

  • Phyllis Wangui

    Phyllis Wangui is a Financial Analyst and News Editor with qualifications in accounting and economics. She has over 20 years of banking and accounting experience, during which she has gained extensive knowledge of the forex, stock news, stock market, forex analysis, cryptos and foreign exchange industries. Phyllis is an avid commentator on these topics and loves to share her insights with others through financial publications and social media platforms.