LONDON (Reuters) – A Europe on the brink of stagnation and a mixed outlook from Amazon dented global shares on Friday as investors hoped that anticipated interest rate hikes next week on both sides of the Atlantic will herald a peaking of borrowing costs.
S&P 500 stock index futures were down 0.3% after Amazon.com Inc (NASDAQ:AMZN) signalled its cloud growth would slow further as its business customers braced for turbulence and clamped down on spending.
Oil was firmer but still heading for another monthly decline after disappointing U.S. economic data and uncertainty over interest rates.
The yen fell to a nine-year low against the euro after the Bank of Japan left its ultra-easy monetary policy unchanged. The dollar gained on expectations of a U.S. interest rate hike next week.
The MSCI All Country stock index was slightly weaker, but remains up more than 7% so far this year.
In Europe, the STOXX index of European eased 0.2% and was headed for its first weekly decline in six as bank shares and economic data weighed.
The euro zone grew only marginally in the first three months of 2023, and at a rate lower than market expectations, sending the euro lower. “The euro zone economy carries on along the rim of stagnation,” ING bank said.
After U.S. data before the opening bell on Wall Street, investors will turn to next week’s European Central Bank and U.S. Federal Reserve rate-setting meetings.
High inflation and a weak economy will keep the ECB in a tight spot, while the Fed faces market worries about regional U.S. banks and haggling over the country’s debt ceiling, analysts said.
Markets expect both central banks to raise rates modestly.
Patrick Spencer, vice chair of equities at RW Baird, said the Fed is likely to hike by 25 basis points.
“Futures are saying interest rates will be lower than Fed Funds by year end, indicating a decline. I think certainly they will pause,” Spencer said.
Graphic: Big Tech share of S&P500 market cap – https://fingfx.thomsonreuters.com/gfx/mkt/dwvkdlweepm/One.PNG
BANK OF JAPAN REVIEW
The Bank of Japan kept its loose monetary settings unchanged but revamped its guidance on the future path of policy, and announced a “broad-perspective” review with a planned timeframe of around one to one-and-a-half years.
In its first meeting under new governor Kazuo Ueda, the central bank modified its forward guidance by removing a pledge to keep interest rates at “current or lower levels”.
Japan’s Nikkei jumped 1.4% while the yen initially weakened before turning 1% higher against the dollar, and Japanese government bonds rallied.
“There’s still a major consensus call that shorting the dollar to buy the yen will be the big move of the year, but we’re looking for the catalyst, which would be a signal from the BoJ it is ready to tighten policy,” said Simon Harvey, head of FX analysis at Monex Europe.
Harvey said that signal could come in June.
Markets are pricing in an 85% chance of the Fed raising rates by 25 basis points, the CME FedWatch tool showed. Traders expect the hike to be the last in the U.S. central bank’s fastest tightening cycle since the 1980s.
The yield on 10-year Treasury notes eased to 3.47%, after clocking its biggest intraday gain since March on Thursday as investors weighed a looming debt ceiling showdown in Washington. The yield on the 30-year Treasury bond eased to 3.70%.
The dollar index, which measures the currency against six rivals, was 0.58% higher, with the euro down 0.4% at $1.098 [.FRX/]
U.S. crude was up 0.5% at $75.12 per barrel and Brent was trading at $78.90, up 0.7% on the day. [O/R]
Source: Economy - investing.com
