© Reuters. FILE PHOTO: A man reads a magazine in front of a stock index chart at a bank in Bangkok, Thailand October 17, 2016. REUTERS/Edgar Su/File Photo
By Naomi Rovnick and Stella Qiu
LONDON, SYDNEY (Reuters) – Global stocks fell from 14-month highs hit last week as investors awaited testimony from U.S. Federal Reserve Chairman Jerome Powell in markets that remain dominated by stocks. monetary policy bets.
MSCI’s broad gauge of global stocks softened 0.3% as Wall Street markets closed for the June 16 holiday.
In Europe, the stock market index lost 0.7%. Short-term UK government bonds continued to sell ahead of the Bank of England’s monetary policy decision on Thursday, in which it is expected to raise interest rates for the 13th consecutive meeting.
After a week in which the stock market applauded the Fed’s decision not to raise rates in June, Powell is scheduled to give testimony to Congress on Wednesday and Thursday.
Hopes that the Fed will end its most aggressive rate hike campaign in decades boost global equity indices dominated by US tech megacaps which tend to outperform when risk appetite is supported by monetary policy more flexible.
Billions of dollars have been poured into big tech in recent weeks, with analysts citing the productivity-enhancing potential of artificial intelligence for the rally.
“The obvious AI narrative has dominated this rally in tech stocks,” said Dan Cartridge, portfolio manager at Hawksmoor.
“But it also has a lot to do with interest rate expectations,” he added, warning that the Fed’s continued hawkishness would mean “we’ll see valuation compression again quite quickly.”
In Europe, the pound sterling traded near its highest against the dollar since April 2022, at $1.279.
Bets that the Bank of England will raise interest rates to a 15-year high this week as inflation continues to run more than four times its target have supported the pound. Money markets are now putting a 75% chance that the BoE will opt for a 25 basis point (bp) rate hike and a 25% chance of a 50 bp hike.
Yields on two-year UK government bonds, which reflect rate expectations and rise when the price of debt falls, added 7 basis points to 5.01%, topping the 15-year high of last week. The yield on UK 10-year gilts stood at 4.462%, in an inverted yield curve pattern that can precede recessions.
In Asia, it fell 1%, slightly off three-decade highs.
Chinese blue chips fell 0.9%, while those in Hong Kong fell 1.2% as investors’ hopes of a vigorous economic stimulus from Beijing were dashed by a lack of concrete details during a cabinet meeting on Friday.
Goldman Sachs (NYSE:) on Sunday lowered its forecast for China’s GDP growth this year to 5.4% from 6.0%, joining other major banks in lowering growth expectations for the world’s second-largest economy.
But the People’s Bank of China is also expected to cut its prime interest rates on benchmark loans on Tuesday, following a similar reduction in medium-term loans last week.
Elsewhere, the was little changed against major peers at 102.33 on Monday, after falling 1.2% the previous week, the most in five months.
The yen was undermined by Friday’s dovish Bank of Japan meeting, hitting a seven-month low of 141.97 to the dollar, while the hawkish European Central Bank, which raised rates by a quarter point last week helped the euro hold near a five-week high. at $1,092.
In oil markets, it remained stable at $76.65 a barrel. (OR)
Gold prices held steady at $1,954.39 an ounce.