Stocks fall after Ukraine attacks and rate outlook spark flight to safety

  • The global MSCI index falls on the fourth day
  • Russian bombings in Ukraine fuel nervousness
  • Markets braced themselves for a high US core CPI for the earnings season

LONDON, Oct 10 (Reuters) – Global stocks fell on Monday after a series of blasts in the Ukrainian capital and renewed concerns about the economic outlook pushed investors into safe-haven assets such as the dollar and bonds.

Any belief that the Federal Reserve will move to a softer stance on monetary policy was snuffed out on Friday by data showing that unemployment fell in September, suggesting the job market is not suffering from blistering inflation.

The dollar remained stable against a basket of currencies while a number of market-based measures of investor risk appetite showed further gains.

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Russian rocket attacks during Monday’s rush hour in Ukraine killed at least five people in the capital Kyiv, in apparent revenge bombings after President Vladimir Putin declared an explosion on the bridge to Crimea a terrorist attack. read on read on

“I was wondering if the markets were looking at the situation in Ukraine and thought this was the end for us – which was the first reaction to the progress made by the Ukrainian army over the summer. That reaction is no longer happening and this is clearly seen as just an increase in tensions and not the end of anything,” said Kit Juckes, head of monetary strategy at Societe Generale.

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“We have geopolitical tensions and we’re still on the way to tightening monetary policy in the States and the concern is still, when they’re done tightening will they tighten too much and make the economy look pretty vulnerable?” he added.

The MSCI All-World Index (.MIWD00000PUS) fell 0.5% in early trade in Europe, falling for the fourth straight day. The pan-European STOXX 600 (.STOXX) fell 0.5% to its lowest level in a week, while Germany’s DAX (.GDAXI) fell 0.1% and the FTSE 100 (.FTSE) 0.7%, making it made it one of the weaker indices.

S&P 500 futures fell 0.5%, while those on the Nasdaq lost 0.6%.

Wall Street fell on Friday after an upbeat pay report cemented expectations for another big rate hike. Continue reading

Futures imply a more than 80% chance that rates will rise by 75 basis points over the next month, while the European Central Bank (ECB) is expected to match and the Bank of England to rise by at least 100 basis points. ,

KEY ACTION

US consumer inflation is likely to have eased to 8.1% yoy, but the core indicator is likely to have accelerated to 6.5% from 6.3%. US CPI data is due Thursday.

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“We are in the midst of the largest and most synchronized tightening in global monetary policy in more than three decades,” said Bruce Kasman, head of economic research at JPMorgan, who expects interest rates to rise by 75 basis points from all three central banks.

“The September CPI report should show moderation in commodity prices, which is a likely harbinger of a broader slowdown in core inflation,” he said. “But the Fed won’t respond to a whisper of inflation moderation as long as labor markets cry out for tightness.”

Minutes from the Fed’s last monetary policy meeting will also be released this week and may sound hawkish given how many policymakers have upgraded their dot-plot forecasts for interest rates.

Although US inflation and the Fed’s response to it remain the focus of investor attention, rising risk aversion among investors buoyed eurozone government bonds.

German 10-year Bund yields, which serve as the benchmark in the region, fell 3 basis points to 2.162%, while the more sensitive 2-year Treasury bills fell 8 basis points to 1.787%.

Another note of caution was the 2% decline in Chinese blue-chip stocks (.CSI300) after a survey that showed the first drop in services activity in four months. Continue reading

INCOME TEST

Corporate earnings also start on Friday when JPMorgan, Citi, Wells Fargo and Morgan Stanley report results.

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“The consensus is for annual EPS growth of 3%, revenue growth of 13% and margin contraction of 75 basis points to 11.8%,” analysts at Goldman Sachs said in a note. “Excluding energy, earnings per share are expected to fall 3% and margins to close are expected to decrease 132 basis points.”

“We expect smaller positive surprises in Q3 compared to H1 2022 and negative revisions to consensus estimates for Q4 and 2023.”

The dollar index rose 0.3% to 113.14, causing the euro to fall 0.4% to $0.9697 and the yen flat at 145.45, a hair off the recent 24-year high of 145, 90 removed that triggered Japanese intervention.

Sterling slipped 0.3% to $1.10625 after the Bank of England announced a surprise decision to support the gilt market ahead of the end of an emergency asset purchase program on Friday. [nL8N31B0VI]

Oil prices fell for the first time in a week as investors benefited from last week’s 11% rally following an agreement on OPEC+ supply cuts.

Brent fell 0.7% to $97.26 a barrel, while US crude fell 0.6% to $92.08 a barrel.

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Additional reporting by Wayne Cole; Editing by Diane Craft, Ana Nicolaci da Costa and Ed Osmond

Our standards: The Thomson Reuters Trust Principles.

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