According to the improved mood in global equity markets, investors are once again taking aim at central banks.
Despite a slew of data from around the world showing stronger-than-expected performance in economies and labor markets – red flags for inflation – equities are on the mend.
MSCI’s world index of global shares has recovered more than 2% this month after falling 3% in February, wiping out a large portion of January’s 7% gain.
Asian equity markets rose on Tuesday, but investors will be focused on Federal Reserve Chair Jerome Powell’s testimony before Congress on Tuesday and Wednesday.
Will Powell be able to send a clear message to markets about the pace of future interest rate increases? Markets will focus on this.
Short-term government bond yields in the eurozone rose to their highest level in 14 years on Monday after hawkish policymaker Robert Holzmann called for four more 50-basis-point interest rate hikes from the European Central Bank, while 10-year yields remained stable.
The European Central Bank has already raised rates to 2.5%, a 3 percentage point increase since July, and has essentially promised another half-point increase on March 16.
Following the outperformance of European stocks this year, investment managers are cautious.
BlackRock Investment Institute strategists believe the trend will end as recent data push the European Central Bank to raise rates and keep them higher for longer.
While remaining underweight in European stocks, it favors financials, energy, healthcare, and consumer discretionary.
And Schroders’ analysts are among those who believe the ECB will keep interest rates on hold beginning in March.
In a report, Schroders noted that replenishing gas storage levels and falling energy prices reduce the need to raise rates further, but that some of the reduced demand for energy in 2022 was due to mild winter weather, and that there was no guarantee of a repeat of this winter.
Thousands of job cuts are on the way at Meta Platforms, according to Bloomberg News, just a few months after the Facebook parent cut more than 11,000 people from its workforce.
Bloomberg News reported that German chemicals distributor Brenntag is considering buying back at least 5% of its shares. This comes as activist investors pressure the company to split up and spin off its specialties unit, as well as launch a share buyback program.
Meanwhile, Australia’s central bank raised its cash rate by 25 basis points to 3.60%, the highest in more than a decade, and said it expects further tightening to be required to contain inflation.
Important developments that could have an impact on markets on Tuesday include:
European economic data: ECB consumer expectations survey, British Retail Consortium February retail sales, Halifax house prices
Speakers: Federal Reserve Chairman Jerome Powell will deliver semi-annual monetary policy testimony at 1500 GMT.
January wholesale trade sales and consumer credit in the United States
