Wall Street Futures Decline
On Monday, the expectations for future performance on Wall Street were slightly down.
This was influenced by concerns related to geopolitical tensions, instability in China’s markets, and a strong U.S. jobs report.
U.S. Stock Index Futures Drop
Futures for major U.S. stock indices like S&P 500 and Nasdaq 100 showed decreases.
Rise in Two-Year Treasury Yields
The yields on U.S. government bonds with a two-year maturity reached a one-month high, hitting 4.435%.
This was driven by comments from Federal Reserve Chair Jerome Powell, who was cautious about an immediate interest rate cut.
Global Market Movements
MSCI’s global index, representing world shares, experienced a slight decline of 0.1%.
However, Europe’s broader index showed a 0.4% increase.
Concerns and Support in China
Small-cap stocks in Asia, especially in China, faced a decline due to low investor confidence and a lack of support from policies.
China’s small-cap stock index, S&P China CSI 1000, dropped over 6%, reaching a three-year low.
China’s securities regulator promised to prevent abnormal market fluctuations without specifying how.
State-backed investors in China, known as the “national team,” increased their purchases of blue-chip funds to stabilize the market, but the decline persisted.
Federal Reserve’s Rate Cut Timing
Global markets are closely monitoring when the U.S. Federal Reserve will make its first interest rate cut.
Strong economic data and resistance from central bankers have led investors to lower their expectations of a rate cut.
Market Expectations and Job Growth
Current market predictions suggest an 80% likelihood that the Fed will maintain rates in March.
Traders anticipate just under 120 basis points (bps) of cuts throughout the year.
January’s U.S. job growth exceeded expectations, with wages seeing the most significant increase in almost two years.
The robust labor market indicates a potential delay in the Fed’s easing measures.
Dollar Strength and Oil Prices
The U.S. dollar, measured against major currencies, reached a twelve-week high.
Oil prices initially surged due to U.S. strikes on Iran-aligned factions but later retreated.
U.S. crude oil dropped to $71.73 per barrel, and Brent crude was at $76.90.
Federal Reserve Chair’s Perspective
Jerome Powell, the head of the Federal Reserve, emphasized the need for confidence in a sustained decline in inflation before considering a rate cut.
Powell stated that the central bank can be cautious in deciding when to cut rates, given the strong economy, allowing time to build confidence in falling inflation.
Q4 Earnings Reports
A Goldman Sachs research note highlighted that a higher number of companies reported Q4 results below analyst expectations.