Global Highlights: Market expecting FED to raise key rate in March

The dollar index slipped 0.09% to 96.171 while policymakers are ready for a reduction in the balance sheet. It is likely will start sometime after the central bank begins raising interest rates, given the outlook for the economy, labour market and inflation.

Currently, the market is expecting the Fed to raise its key rate in March, which means that the balance sheet reduction may start before summer. On the data front, private businesses hired 807K workers in December of 2021, the highest in seven months (cons. 400K).

The Dow Jones declined 1.07% to 36,407 while the S&P 500 dropped 1.94% to close at 4,701. In parallel, the UST10-year benchmark yield was sent higher by 5.8bps to 1.705%. Gold lost 0.23% to US$1,810/oz.

The euro climbed 0.24% to 1.131. The World Health Organization (WHO) on Tuesday warned that even though Omicron’s rates of death and hospitalisation have been lower across the world, it could increase the risk of newer and more dangerous variants emerging.

The British pound rose 0.20% to 1.356 as sentiment was boosted by the UK’s Prime Minister’s statement on Tuesday that there is no need for new Covid restrictions in England despite recording another new daily record high of Covid cases.

The Japanese yen strengthened slightly by 0.04% to 116.11. Data showed that the Consumer Confidence Index in Japan was at 39.1 in December 2021, slightly down from 39.2 in November which remained the highest reading since May 2019. In the meantime, the Chinese yuan firmed 0.14% to 6.364.

Crude oil was traded slightly higher as the report by the EIA showed that US crude oil inventories fell by 2.14mil in the last week of 2021, lower than the forecast of 3.28mil drop. Brent added 1.00% to US$80.8 per barrel while WTI gained 1.12% to US$78 per barrel. – AmBank Research