Stocks fluctuate as oil’s climb adds to interest rate concerns

BLOOMBERG

Stocks fluctuated as traders braced for a potentially hawkish message from major central banks meeting to set interest rates. Benchmark Brent crude oil topped $95 a barrel for the first time since November, adding to concerns about inflation.
Oil giants TotalEnergies SE, BP Plc and Shell Plc were among the biggest contributors to gains in Europe’s Stoxx 600 benchmark, while US equity futures were steady. Crude has soared by about a third since mid-June as the leading nations have joined hands to curb supplies and drive a rebound in prices. That has sustained the pressure on central bankers as they seek to cool inflation, while managing risks to their economies. The Federal Reserve sets policy on Wednesday, the Bank of England Thursday and the Bank of Japan on Friday.
“Central banks have done a rather good job so far, but there’s little room for manoeuvre now,” said David Kalfon, chief executive officer of Sanso Investment Solutions. “They made clear since the start of the cycle that beating inflation is the key, not growth.” US Treasury yields edged higher, while a gauge of dollar strength slipped.
The prospect of rates staying higher for longer has drained some of the enthusiasm towards tech shares, after they led the rally in US stocks earlier this year.  Flows suggest investors are positioning for more losses in the Nasdaq 100, according to Citigroup Inc strategists. Nasdaq futures continued to attract bearish flows, leaving positioning heavier on short bets rather than long, the team led by Chris Montagu said. That suggests “few investors are comfortable taking a bullish view on the possibility of a near-term reversal for the growth/tech related index,” they wrote in a note dated. The Nasdaq 100 is down about 3.9% from a peak on July 18.
|With the Fed forecast to keep interest rates on hold this week, traders will be focused on the so-called dot plot summary of economic forecasts.
The two main questions are whether policymakers will retain their projections for one more 25 basis-point hike by year-end, and how much easing they are penciling in for 2024. In June, they projected one percentage point of cuts. “The Fed is likely to highlight that in its collective view the fight against inflation has not yet been won and that the FOMC will be highly data-dependent in terms of future rate decisions, leaving the door open for a possible rate hike later in the year,” said Richard Flax, chief investment officer at European digital wealth manager Moneyfarm.
“If the Fed sounds a more hawkish tone, we could see a continuation of the higher-for-longer trend that we’ve seen recently, with lower probability of significant rate cuts in 2024.”