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Stocks falter as economic worries nag, big rate hike lifts kiwi dollar

2023-04-05T08:44:13Z

World stock markets stumbled on Wednesday as signs that the economic outlook is weakening spurred caution, while a bigger-than-expected interest-rate hike from New Zealand lifted the kiwi dollar.

European stocks fell with the broad STOXX 600 index pulling away from Tuesday’s one-month highs (.STOXX). U.S. equity futures dipped , and Japan’s Nikkei (.N225) fell 1.6% in its biggest one-day percentage fall since mid-March.

MSCI’s world equity index (.MIWD00000PUS) pulled further away from Tuesday’s almost seven-week highs, while Asia trade was thinned by holidays in Hong Kong and China.

Weak U.S. economic data this week has exacerbated recession worries, taking the edge off recent stock market gains.

Data on Tuesday showed U.S. job openings fell in February to the lowest level in almost two years and data on Monday pointed to weakening U.S. manufacturing activity. U.S. March service sector activity data is due out later.

Interest rate futures have rallied strongly in recent weeks as traders bet that turmoil in the banking sector will tighten up on lending anyway and save the need for the Federal Reserve to do the job.

Markets pricing implies a better-than-even chance that the Fed has finished raising rates and more than 60 bps in cuts this year.

“With the banking worries at least in the background for now focus is on the economic data and central bank policy,” said Nordea chief analyst Jan von Gerich.

“There is no fixed way of interpreting the data in markets but it does seem that latest data was not seen as positive for equities by raising growth worries.”

In a note, Pictet Asset Management chief strategist Luca Paolini said that with focus turning from inflation to growth risks, Pictet had upgraded U.S. equities to neutral from underweight.

The U.S. dollar index was stuck at two-month lows and the currency fell to its lowest since August 2021 against the Swiss franc at 0.9049 on a view that the end of the U.S. Federal Reserve tightening cycle was drawing nearer.

In contrast, New Zealand’s currency, also known as the kiwi dollar, jumped after the Reserve Bank of New Zealand raised rates by 50 basis points to a 14-year high at 5.25%.

It rose to its highest since mid-February and was last trading up 0.2% at $0.6383.

Outside the United States, markets see other central banks staying the course on hikes to tame inflation. A Reuters poll of FX strategists found most expect that to keep pressure on the dollar this year.

The euro was steady but holding near Tuesday’s two-month high near $1.09 , while sterling was holding near its highest level in around 10 months against the dollar .

While government bond yields edged up on Wednesday, they have been moving lower in recent weeks – reflecting expectations for weaker growth and a pause in monetary tightening.

Two-year Treasury yields were 3 bps higher at 3.87% but well below highs above 5% seen just before the collapse of Silicon Valley Bank last month .

“We’re not quite done with the tightening cycle, but we’re getting closer,” said Jim Cielinski, global head of fixed income, Janus Henderson.

In Europe, government bond yields were broadly steady , after being whipped around sharply in recent weeks.

Gold , which pays no yield, hit a fresh one-year high above $2,000 an ounce. It was last up almost 0.3% at $2,025 an ounce.

Commodity markets were settling down after Monday’s surge in oil prices on news of surprise OPEC+ production cuts.

Brent crude futures gained 36 cents, or 0.4%, to $85.31 a barrel. West Texas Intermediate U.S. crude was up 28 cents, or 0.37%, to $81.02a barrel.

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