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Interest rate concerns retreat as geopolitics cause unease

Stocks were up alongside bonds on Tuesday as traders brushed off worries about central banks’ interest rate hiking cycles. But geopolitical developments in Israel and the Baltic Sea held the optimism in check. Later Wednesday, the Federal Open Market Committee minutes will shed light on the Federal Reserve’s (Fed) thinking and the Producer Price Index will provide some insight into the pace of price increases in the world's largest economy.

Shane Strowmatt, LGT
Tempo di lettura
5 minuto
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Comments made early in the week by several Fed officials showed signs that a consensus may be building at the US central bank to end the current interest rate hiking cycle. The comments helped market sentiment to brighten with yields on ten-year US government debt slipping the most in months.

Both European and US stock markets rallied on Tuesday. The Euro Stoxx 50 closed 2.3% higher. In New York, the major indices were able to continue with the gains made in the last two sessions. The Dow Jones Industrial increased 0.4% and the S&P 500 was up 0.5%. The Nasdaq-100 gained 0.6%.

The rally continued on Asia-Pacific markets on Wednesday. South Korea was leading regional gains with the Kospi jumping 2.3%. Samsung stock (+3.2%) was driving the gains after the chipmaker released a profit forecast that beat expectations. In Tokyo, the Nikkei 225 was up 0.7% after the release of the Tankan survey that showed little change in business morale at Japan’s largest companies. In Australia, the S&P/ASX 200 was up 0.7%. Hong Kong's Hang Seng Index gained 1.7%, while the Shanghai Composite gained 0.2%. In individual stocks, shares of Country Garden stabilized on Wednesday after falling sharply earlier in the week when the Chinese property developer warned it may have problems repaying some offshore debt.

While potential peak interest rates were driving market sentiment, geopolitical worries continued to dominate headlines. Iran’s head of state denied any involvement in the Hamas attack on Israel over the weekend. Investors are watching the situation unfold for any clues that the conflict could spread beyond Israel and the Gaza Strip.

Geopolitical tensions also caused concern beyond the Middle East. Finland said a leak discovered in an undersea gas pipeline between Finland and Estonia could be an act of sabotage. Last year, multiple underwater explosions on the Nord Stream pipeline in the Baltic Sea shortly before the onset of winter caused energy prices to spike in Europe. On Tuesday, the anxiety about Europe’s energy infrastructure returned with gas prices on the continent increasing by double digits.

The International Monetary Fund increased its forecast for global inflation on Tuesday. It now expects a 5.8% increase in consumer prices around the world, up from the 5.2% published in its last World Economic Outlook. It urged the world’s central banks to keep rates high long enough to ensure that inflation retreats.

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: German Consumer Price Index (08:00 CET), US Producer Price Index (14:30), International Monetary Fund Fiscal Monitor (15:30), Federal Open Market Committee minutes (20:00).


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Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.