Morning bid: Who let the hawks out?

A look at the day ahead in US and global markets from Dhara Ranasinghe.

The US Federal Reserve has entered its darkest period ahead of next week’s meeting, data is thin and much of Asia is closed for the New Year holiday. It is a good opportunity for the policy hawks at the European Central Bank to get their message across.

The ECB is likely to raise interest rates by 50 basis points in February and March and will continue to raise rates in the months after that, ECB governing council member Klaas Knot said this week.

ECB chief Christine Lagarde meanwhile reiterated that the central bank will keep raising rates at a faster pace to bring inflation down to its 2% target.

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Lagarde is scheduled to speak later in the day.

Money traders got a tip – they pushed the euro to a nine-month high above $1.09 on Monday, and the same currency ended more than 0.5% a day and posted a fourth month of gains.

If the data this week from the euro zone, as the first snapshot of business activity (PMIs for January) shows that it is better than expected, the euro can quickly touch $ 1.10, some analysts think.

That’s not bad going for a currency that was languishing at a decade low around $0.95 in September.

Euro at nine-month high vs dollar

The Bank of Canada, meanwhile, is expected to raise interest rates by 25 bps on Wednesday. A pause in the rate hike was expected just a few weeks ago, but strong data encouraged markets to price in another move this week.

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Canada’s central bank raised interest rates by a record 400 bps in nine months to 4.25%, and said after its last hike that the decision to raise rates further would depend more on data.

Trading in US stock futures suggested a flat open on Wall Street, although signals from other major stock markets were positive in US trading later.

Japan’s blue-chip Nikkei stock index rallied more than 1.3% (.N225) and European shares (.STOXX) were pushed higher by tech and mining shares, while banking stocks were boosted by hawkish ECB talk .

Earnings season is always in the spotlight, with Microsoft, Blackstone and Boeing among those scheduled to report earnings this week.

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Key developments that could provide direction for US markets later on Monday:

– Goldman Sachs to reduce income-based asset management investments

– Japan warns of currency scare as BOA tries to contain yields

– POLL-European Central Bank to increase the deposit rate to 3.25% in the middle of the year

Reporting by Dhara Ranasinghe, editing by Ed Osmond

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust’s Principles, is committed to integrity, independence, and freedom of impartiality.


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