Global Markets Retreated in Anticipation of Fed Policy Meeting Articulation of Inflation Concerns over State of Economy

As of 3:15 p.m. CET, both the S&P 500 futures and Nasdaq futures dipped around 0.3% ahead of a week packed with new economic data. This week, investors will be focused on the latest CPI report and the U.S. Federal Reserve's interest rate decision at its scheduled FOMC meeting.

During pre-market hours, Rivian (RIVN) shares instantly fell about 4% after the announcement of suspension of its partnership with Mercedes-Benz Vans, but in late premarket the stock somewhat recovered. Microsoft (MSFT) is slightly higher after it declared it was investing in the London Stock Exchange. Earnings spotlight today includes Oracle (ORCL) and Coupa Software (COUP). Yum Brands (YUM) will hold what will be a closely watched investor event for the restaurant sector. Heading into 2023, Yum Brands has been named a top pick by several investment powerhouses.

As it was mentioned, The Federal Reserve will hold a two-day meeting this week with expectations of an interest rate hike of “muted” 50 points. While recent readings from the U.S. labor market continued to be relatively strong, the current housing slump appears to be spreading into manufacturing and given economists differing opinions on how high the terminal interest rate will go. Futures on the federal funds indicate almost an even split between a 25-point or 50-point interest rate increase at the February meeting. Bank of America (BAC) thinks Chairman Jerome Powell is likely to push back once more against the idea of becoming more dovish. Powell could reiterate his comments from a speech last week when he noted wage inflation plays a large role in core services inflation ex-housing and the only way to bring inflation back towards the target rate is to slow down the labor market. Outside of Powell's speech, the summary of economic projections will be closely watched, with the median forecast for 2023 forecast to move up by 50bp to 5.125%. What about 2024 and 2025? BofA thinks the dot plot will point to 100bp of cuts each in 2024 and 2025.

JPMorgan (JPM) Chase CEO Jamie Dimon on Sunday said that a government shutdown and default would be “catastrophic” and that Republicans and Democrats should reach a spending agreement sooner rather than later ahead of Friday’s deadline. The CEO said it would be better for the parties to address the debt ceiling and “get it done now” rather risking a showdown later.

Meanwhile, European stock markets are trading somewhat weaker today, dragged by declines in Asian stocks, with the spotlight on expectations that eurozone inflation may be peaking. At the time of writing, the pan-region Euro Stoxx 50 futures down 0.66%, German DAX futures losing 0.41%, and the British FTSE futures 0.42% are lower. The European Central Bank is set to take its deposit rate up by 50 basis points to 2%, despite the eurozone economy almost certainly being in recession, as it battles inflation running at five times its target.

Earlier this morning, Asian shares slumped, and the dollar firmed at the start of a hectic week. Tech stocks were the biggest drag on the Hang Seng China gauge. Chinese stocks slid amid some profit-taking following their sharp recent gains, and as general caution prevailed in equity markets ahead of the crucial events of this week. Philippine President Ferdinand Marcos Jr. said the proposed sovereign wealth fund will help boost economic development and investments in the country.

Meanwhile, Indian shares fell on Monday, as traders braced for local retail inflation data. China’s bluechip Shanghai Shenzhen CSI 300 index fell 0.89%, while the Shanghai Composite fell 0.87%. The Japan’s Nikkei 225 retreated by 0.21% to 27,842. The Hang Seng in Hong Kong sank 2.20% to 19,464. The Kospi in Seoul shed 0.67% to 2,373.