Aurelia Butler

Wall Street’s main indexes are set for their first annual drop after three straight years of gains, dragged lower by the Fed’s fastest pace of interest rate hikes since the 1980s as it sought to stamp out decades-high inflation.With investors flocking to safer assets such as the U.S. dollar and avoiding riskier bets, the benchmark S&P 500 and tech-heavy Nasdaq have slumped 19% and 33%, respectively, this year.Both indexes are on course for their biggest yearly decline since the 2008 financial crisis. Focus has now shifted to 2023 and the outlook for corporate earnings as investors grow increasingly concerned about the likelihood of an economic downturn from sharp rate hikes.”The most important take of the year is: the era of easy money ended, and ended for good. It means that the financial markets won’t look like anything we knew since the subprime crisis,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.”Given that there is still plenty of cheap central bank liquidity waiting to be pulled back, the situation may not get better before it gets worse in the first quarters of next year. Recession, inflation, stagflation will likely dominate headlines next year.” Wall Street’s main indexes closed higher on Thursday after unemployment data signaled the Fed’s policy tightening was starting to take a toll on the U.S. labor market.Still, signs of resilience in the American economy have fueled concerns that interest rates could stay higher for longer though easing inflationary pressures have kept alive hopes that the Fed could dial down the size of its rate hikes. Most rate-sensitive technology and growth stocks such as Apple Inc (NASDAQ:AAPL), Amazon.com Inc (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL) Inc and Meta Platforms Inc (NASDAQ:META) fell between 0.4% and 0.6% in premarket trade on Friday, as U.S. Treasury yields rose. Money market participants see 69% odds of a 25-basis-point hike in the Fed’s upcoming February meeting, with rates expected to peak at 4.96% by the middle of next year. [FEDWATCH] At 6:23 a.m. ET, Dow e-minis were down 98 points, or 0.29%, S&P 500 e-minis were down 13 points, or 0.34%, and Nasdaq 100 e-minis were down 42.75 points, or 0.39%. More

Spanish inflation slowed more than expected in December, raising expectations of an easing in price pressures across the eurozone.Spanish consumer prices rose by 5.8 per cent in the year to this month, according to preliminary figures published by the national statistics office on Friday. The figure was down from 6.8 per cent in the previous month and a sharper fall than economists had forecast. The Spanish data are the first December inflation figures for a eurozone member state. If similar falls occur elsewhere, then policymakers at the European Central Bank could opt to lower the pace of rate increases more quickly than markets expect. German data are out on Tuesday and are expected to show inflation slowing from 10 per cent to 9 per cent. Italian price pressures are also expected to have moderated, while figures for the eurozone as a whole are forecast to show inflation returning to single digits. Economists predict a fall to 9.7 per cent in December from 10.1 per cent in the previous month when data for the single currency area are out next Friday. Though headline inflation is now falling in several major economies, underlying price pressures continue to linger. Core inflation in Spain — a measure which excludes energy and food inflation — accelerated to 6.9 per cent in December from 6.3 per cent in the previous month and the highest since records began in 2003.“Services prices will continue showing robust monthly dynamics, keeping core eurozone inflation close to the 2022 highs,” said Iaroslav Shelepko, economist at Barclays, adding that he expected “growing divergence” between headline and core measures as a “theme” for 2023.Faced with the highest inflation on record, the ECB raised rates by 2.5 percentage points over the course of 2022, from minus 0.5 to 2 per cent. Inflation hit a peak of 10.6 per cent in October.The ECB’s governing council next meets to set policy on February 2. Christine Lagarde, ECB president, hinted after rate-setters’ December vote that a half-point rise in borrowing costs was likely. However, sharper than expected falls in inflation would raise the chances of the ECB switching to quarter-point rises early next year. The Spanish reading was lower than the 6 per cent forecast by economists polled by Reuters and marked the fifth consecutive decline from a peak of 10.8 per cent registered in July.Nadia Calviño, Spain’s deputy prime minister and economy minister, celebrated the data as “very positive”, noting that Spain’s inflation rate had now dropped by 5 percentage points in five months. “There may be upticks, but the trend is for inflation to continue to fall in 2023,” she told Cadena Ser radio.Spain has taken several steps to limit the rise in energy costs this year, including the so-called “Iberian exception” that decoupled the price of electricity from that of gas by capping the wholesale costs for gas paid by power generators.Madrid also introduced a blanket fuel subsidy that reduced petrol and diesel prices by €0.20 per litre, although it is due to expire on December 31 and will be available only to business consumers from next year.Calviño said: “All the measures we’ve put in place are aimed at containing the rise in prices and we see that they are proving to be effective. The fall in energy is the fundamental factor that explains why inflation is falling.”

The country has also benefited from its historically low dependence on Russian gas compared with Germany and other parts of northern Europe.In a new €10bn package of measures to ease the cost of living, Spain’s Socialist prime minister Pedro Sánchez this week announced a cut in sales tax from 4 per cent to zero for basic foods including bread, milk, cheese, fruit and vegetables.Calviño described the measures as sending “a very powerful measure” that would keep the cost of everyday staples in check. The package included a one-off payment of €200 for some 4mn households and was the third round of support announced this year, taking the combined cost for the government to €45bn. More

The People’s Bank of China will keep growth of money supply and total social financing basically in line with nominal economic growth, the central bank said in a statement after a quarterly meeting of its monetary policy committee.Chinese leaders have pledged to focus on stabilising the economy in 2023 and step up policy adjustments to cushion the impact from a surge in COVID infections at a time when a weakening global economy is hurting exports.”We will step up the implementation of prudent monetary policy, which will be precise and forceful,” the central bank said.”We need to work hard to stabilise growth, employment and prices. We need to support the expansion of domestic demand and provide more forceful support for the real economy.” The central bank will lower companies’ comprehensive financing costs and consumers’ credit cost, it said, adding that it will guide financial institutions to increase medium- to long-term loans to the manufacturing sector.The central bank will enhance the yuan’s flexibility while keeping the currency basically stable, it said.China will push forward restructurings, mergers and acquisitions of property firms and guide platform companies to conduct regulated and healthy financial businesses, it added More

(Reuters) – European shares slipped in the last trading session of a rough year marked by geopolitical tensions and fears of a recession as central banks tightened monetary policies.The STOXX 600 fell 0.5% in thin trading on Friday, as surging COVID-19 cases in China stoked concerns over global economic growth. The regional index is on track to end the year 12.2% lower, its worst performance since 2018.China-exposed luxury firms such as LVMH and Hermes International (OTC:HESAF) declined 1.0% and 1.9%.Industrials and banks weighed on the index, while tech stocks slid 0.9%, giving up some of previous session’s sharp gains.The rate-sensitive tech sector had rallied on Thursday, tracking gains in Wall Street peers as U.S. unemployment data signalled the Federal Reserve’s aggressive interest rate hikes might have started denting labour market strength. [.N]Tech stocks are among the worst performers this year, down 28%, as major central banks hiked interest rates globally. The European Central Bank eased the pace of its interest rate hikes earlier this month but stressed significant tightening remained ahead and laid out plans to drain cash from the financial system.”This is the beginning of a new era, when central banks will be playing a more subdued role in the markets, with less liquidity available to fix problems – a more than necessary move that came perhaps too late, and too painfully,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.”Given that there is still plenty of cheap central bank liquidity waiting to be pulled back, the situation may not get better before it gets worse in the first quarters of next year.” GRAPHIC : ECB hikes rates again ECB hikes rates again – https://www.reuters.com/graphics/GLOBAL-CENTRALBANKS/lbvgggljdvq/chart.png Energy stocks bucked the downtrend this year, as crude prices rallied on tight supplies due to the Ukraine war. [O/R] Sharp (OTC:SHCAY) commodity-linked gains and a weak sterling have also helped UK’s export-heavy FTSE 100 outperform peers this year amid political and economic turmoil. UK saw the death of its longest-reigning monarch in 2022 and three prime ministers occupying Downing Street in the second half of the year amid a worsening cost of living crisis that sparked strikes and protests across Europe. (L)The FTSE 100 slipped 0.3% in half-day trading on Friday but was still set to end the year in green. All the European indexes declined in early trading, with Germany and Ireland also open for half-day.On an upbeat note, data showed Spanish December consumer prices rose 5.8%, their slowest annual pace this year, thanks to lower electricity prices compared to a year ago. Telecom Italia (BIT:TLIT) (TIM) fell 2.4% after Prime Minister Giorgia Meloni on Thursday reiterated that the government wanted to take control of the former phone monopoly’s fixed network assets and safeguard employment levels. Graphic : Energy stocks outpace European sectors – https://fingfx.thomsonreuters.com/gfx/mkt/akpeqqwmkpr/European%20sectors%202022.png More

Global stocks were on Friday set to close out the worst year since the 2008 financial crisis after the battle by central banks to tame inflation and the war in Ukraine sent powerful waves rushing across asset markets. The broad MSCI All-World index of developed and emerging market equities has shed nearly a fifth of its value in 2022, with bourses from Wall Street to Shanghai and Frankfurt all notching up significant losses. Bond markets also endured heavy selling: the US 10-year government bond yield, a global benchmark for long-term borrowing costs, has shot up to 3.8 per cent from about 1.5 per cent at the end of last year — the biggest annual increase on Bloomberg records stretching to the 1960s. A 9 per cent surge in the US dollar against a basket of half a dozen major peers has placed further pressure on many markets. Developing economies have taken an especially big hit, since they often borrow in dollars and many key imports, such as crude oil, are priced in the US currency. The grim year for financial markets came as central banks led by the US Federal Reserve ratcheted up borrowing costs in an attempt to control the worst spell of inflation in decades. Rapid increases in interest rates globally dealt a particularly powerful blow to many high-growth companies that prospered when central banks and governments provided a flood of stimulus measures to support the global economy during the 2020 coronavirus crisis. “We had this situation for years where equities and bonds were both expensive because they were the same game, driven by low inflation and low interest rates,” Luca Paolini, chief strategist at Pictet Asset Management said. “The lesson of this year is that at some point there’s a day of reckoning, and when it comes it’s brutal.”Tesla, the electric carmaker, has shed almost two-thirds of its value this year, while chipmaker Nvidia has dropped 50 per cent. US tech titans Apple and Microsoft have tumbled almost 30 per cent, while Google parent Alphabet is off nearly 40 per cent and Facebook owner Meta has plummeted 64 per cent. Overall, the blue-chip US S&P 500 stock gauge is down 19 per cent this year, with the tech-focused Nasdaq Composite off 33 per cent. The value of the cryptocurrency market has tumbled by $1.7tn since the start of 2022, according to Financial Times data, in a sign of how the speculative fervour that took hold in 2020 has burst this year. China’s sprawling equities markets also sustained a blow as the economy was disrupted by strict zero-Covid measures and the country is now battling a huge wave of infections as it opens up again. The CSI 300 measure of stocks in Shanghai and Shenzhen fell 22 per cent in local currency terms and 28 per cent in dollar terms. The MSCI Europe index is down about 16 per cent in dollar terms, but a slimmer 11 per cent in euros. Russia’s full-scale invasion of Ukraine in February further complicated the picture for investors, disrupting supply chains for key raw materials and further inflaming what had already been a severe bout of inflation. Commodities have been among the rare gainers in global markets this year: the broad S&P GSCI gauge has rallied 7 per cent, with energy and agriculture prices posting strong gains. London’s FTSE 100, which is heavily weighted towards energy, mining and pharmaceutical companies, which have fared better in this year’s market shift, is up slightly for the year to date. The intensity of this year’s market swings highlights the scale of regime change faced by global investors, who had grown accustomed to low interest rates since central banks deployed extraordinary measures to prop up the world economy during the 2008 financial crisis and the pandemic that followed 12 years later. Higher interest rates dent the appeal of holding assets such as stocks and riskier debt because investors are able to earn better returns in cash or ultra-safe assets such as US, German or Japanese government bonds. Since higher rates make borrowing more expensive, they also tend to place pressure on the broader economy by tightening financial conditions for companies and businesses. More