a huge Fed rate hike and dismal earnings

  • Global stocks faltered as investors pondered the chances of an oversized rate hike from the Federal Reserve.
  • Consumer spending data could then provide some insight into the resilience of economic activity.
  • Citigroup reports earnings, after JPMorgan and Morgan Stanley missed earnings forecasts on Thursday.

Global stocks fell on Friday, weighed down by the prospect that the

Federal Reserve

could raise rates to the maximum in more than 30 years to counter soaring inflation, while a pessimistic reading of the Chinese economy and dismal earnings added pressure on investor sentiment.

Stocks were battered this week by mounting evidence that inflation could hurt global growth, prompting central banks to make oversized rate hikes to ease price pressures. China’s zero COVID policy, which added to the pessimism, led to annual economic growth of just 0.4% year-on-year in the second quarter of this year, missing market expectations for a 1.0% rise. and a decline of 4.8% growth in the first quarter.

S&P 500, Dow Jones and Nasdaq 100 futures edged up around 0.2% in European trading, while the MSCI All World Index fell 0.1%, heading for a 3 .2% this week.

In Europe, the Stoxx 600 traded up 0.85% but was on track to post a 7% decline on the week, while the MSCI Asia ex-Japan index fell 0.9 %, weighed down by losses in Chinese blue chips after dismal GDP figures on Friday. .

The dollar, which soared to new 20-year highs against a basket of major currencies this month, was set for its third consecutive weekly gain, fueled by a mix of safe-haven buying as investors hunkered down. worried about the prospect of


and an expectation of juicier returns on US assets as the Fed raises rates.

In earnings, JPMorgan and Morgan Stanley kicked off the earnings season on a dismal note. Both banks missed estimates for the first time since 2020, a sign that the exceptional gains in pandemic-era market activity may be drying up and the strength of a strong dollar is being felt.

“Even though the United States is a more domestically oriented economy and stock market, the costs of dollar strength are clear. S&P 500 earnings are reduced by about 5% from current strength. of the dollar, led by the hard-hit technology sector which generates more than 60% of its sales abroad,” said Ben Laidler, global markets strategist at eToro.

Wells Fargo and Citigroup report Friday, while Bank of America and Goldman Sachs are due next week.

Friday’s data will provide a litmus test of how the consumer is holding up in an environment where inflation is hitting 41-year highs and mortgage rates have climbed to their highest level since 2008. The retail sales data for June is expected to show consumer spending rose 0.9%, a reversal from May’s 0.3% contraction, according to Bloomberg data, while a reading on sentiment is expected to show confidence consumers hit a new record high in early July.

With inflation at 9.1%, investors are increasingly expecting the Fed to raise rates by a full percentage point when it meets later this month, which doesn’t happen. hasn’t been produced since late 1989. Interest rate futures show a -50% chance of such an increase, a possibility that was negligible before Wednesday’s consumer inflation reading for June .

“Just as the UMich June Consumer Inflation Survey spooked the Fed into a 75 basis point hike last month, traders are betting yesterday’s 9.1% CPI print is going to scare the Fed into another even bigger hike this month bet,” said Michael Brown, chief strategist at Caxton FX.

Meanwhile, oil hovered below $100 a barrel, having lost 7.6% in value this week, in its fifth straight weekly decline – its longest losing streak this year. Brent crude futures were last down 0.2% at $99.16 a barrel, while WTI crude was down 0.3% at $95.47 a barrel.

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