US stocks slipped on Monday, as investors looked ahead to a busy week of central bank meetings in which policymakers were poised to scrutinise the high rates of inflation across key economies.
Wall Street’s benchmark S&P 500 stock index fell 0.7 per cent in early New York dealings, having closed at a record high in the previous trading session. The technology-heavy Nasdaq index slipped 0.8 per cent.
In Europe, the regional Stoxx 600 index fell 0.4 per cent, while London’s FTSE 100 fell 0.8 per cent and Germany’s Dax was flat. In Asia, Hong Kong’s Hang Seng slipped 0.2 per cent and Tokyo’s Nikkei 225 climbed 0.7 per cent.
In the bond market, the yield on the 10-year US Treasury note fell 0.06 percentage points to 1.42 per cent as the price of the benchmark debt instrument rose. Germany’s 10-year Bund yield was unchanged at 0.38 per cent.
The muted performance comes before three highly anticipated central bank meetings this week. The US Federal Reserve, the European Central Bank and the Bank of England are all set to make policy announcements.
A report last week showed US consumer prices increased 6.8 per cent in November from a year ago — the fastest annual pace in nearly 40 years.
Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note that the Fed was expected to announce on Wednesday it would “taper” its bond purchases at a “faster pace”. That would set the stage for the US central bank to begin raising interest rates to tame inflation.
“Investors are already pricing in three hikes by the Fed in 2022, with the first coming by June,” the note said. “It will therefore take an incrementally more hawkish message from the Fed this week to harm market sentiment.”
Investors are grappling with almost daily updates on the effectiveness of vaccines against the Omicron coronavirus variant, the latest of which — published by the UK Health Security Agency on Friday — found that booster shots could be up to 75 per cent effective against symptomatic infection from the new strain.
That coincided with the emergence of “reassuring” data from South Africa, with Harsha Somaroo, president of the country’s Public Health Association, suggesting that vaccination plus immunity built up from previous infection provide a degree of protection against severe symptoms.
A winter resurgence of Covid-19 further complicates matters for the European Central Bank’s governing body, which meets later this week amid growing pressure to reduce its monetary stimulus. Surging energy prices and supply chain bottlenecks pushed eurozone inflation to a record 4.9 per cent in November, well above the ECB’s 2 per cent target.
“It’s the perfect storm [in terms of] inflation volatility,” said Frederik Ducrozet, global macro strategist at Pictet. “The difficulty for the ECB is that it does not want to overreact” to factors outside its control, such as supply chain issues that have helped drive up inflation.
The UK’s Bank of England, meanwhile, is set to meet on Thursday, with markets pricing in a roughly one-in-three chance that it will raise interest rates to 0.25 per cent from 0.1 per cent.
In currencies, the dollar index — which tracks the performance of the greenback against six others — was up 0.2 per cent. Sterling was down 0.3 per cent.
US stocks slip from record high with monetary policy in focus
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