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Published: 11:52, January 31, 2023 | Updated: 18:17, January 31, 2023
World stocks waver as investors catch central bank jitters
By Reuters
Published:11:52, January 31, 2023 Updated:18:17, January 31, 2023 By Reuters

LONDON - World stocks stumbled and bond yields edged lower on Tuesday as hotter than anticipated European inflation numbers jangled investor nerves ahead of a slew of earnings reports, central bank meetings, and key US economic data.

Investors broadly expect the US Federal Reserve to raise interest rates by 25 basis points (bps) on Wednesday. Interest rate announcements are also due on Thursday from the Bank of England and the European Central Bank - and both are expected to hike rates by 50 bps.

Meanwhile, more than 100 S&P 500 companies, including Apple , Amazon.com and Google parent Alphabet , are expected to report results this week, which also includes the release of closely watched US employment numbers.

Tuesday sees the release of fourth-quarter labour costs, while Friday brings the all-important January non-farm payrolls report.

"Reality is setting in," said Bruno Schneller, a managing director at INVICO Asset Management in Zurich.

Equity markets may have factored in the end of central bank rate hikes, but they do not yet reflect the potential hit to earnings from a slowing economy, Schneller said.

"Recent corporate results, especially 2023 guidance, indicate a negative outlook leading us to maintain a reduced position in equities," he said.

"In the shorter term, there doesn't appear to be an obvious safe haven for investors," said Schneller.

European shares dropped on Tuesday, dented by healthcare stocks, with the pan-regional Euro Stoxx 50 futures index down 0.6 percent, German DAX futures falling 0.5 percent and FTSE futures 0.6 percent lower. US stock futures, the S&P 500 e-minis, were down 0.3 percent.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.4 percent. The index is up over 8 percent so far this month. Japan's Nikkei stock index and Australian shares traded slightly down.

US stock futures fell, pointing to a lower open for the benchmark indices following Monday's losses.

At the end of the Fed's two-day policy meeting on Wednesday, investors will be glued to Chair Jerome Powell's news conference for clues on whether the rate-hiking cycle may be coming to a close, and for signs of how long rates could stay elevated.

Markets will also grapple with a flood of US economic data.

"It's a big week for both central banks and US equities, with ... some of the household names due to make earnings announcements that will provide a micro overview of the macro economy," ANZ analysts said in a note.

"Risk appetite could be vulnerable to a correction," they said.

US Treasury yields edged lower ahead of the central bank meetings and economic data, with the benchmark 10-year note last down 3 basis points at 3.524 percent.

The two-year yield, which rises with traders' expectations of higher Fed fund rates, also fell 3 bps on the day to 4.228 percent.

In currencies, the US dollar, which was poised for its fourth month of declines, was up 0.2 percent at 102.48 against a basket of other major currencies.

The euro fell 0.2 percent to $1.0832, but was still heading for a gain of 1 percent this month.

In the energy market, oil prices fell ahead of the expected hikes by central banks. Brent crude fell 1.2 percent to $83.89 per barrel.

Spot gold also dropped 0.8 percent to $1,904.88 per ounce, driven lower by a stronger dollar.

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