A look at the day ahead from Saikat Chatterjee.
In central bank speak, this was a week when policymakers decisively moved a step closer to unwinding their pandemic-era stimulus from the global financial system. The Fed unveiled an accelerated timetable for policy tightening, the Bank of England surprisingly raised interest rates while the European Central Bank also slightly reined in their stimulus and the Bank of Japan dialled back emergency pandemic-funding.
Markets are not liking it one bit. A gauge of global stocks is on track to post a weekly loss after posting its biggest weekly rise since early February last week while volatility gauges across asset markets on an upswing after declining steadily in recent days, signalling growing angst. Safe-haven assets like U.S. Treasuries and the Swiss franc are in demand.
Coupled with a raging Omicron variant with UK daily coronavirus infections at their highest levels since the pandemic began and disappointment on the Biden administration unable to push through a $1.75 trillion spending plan before Christmas, investors are bracing for a turbulent end to a busy week.
And there is plenty more scope of unwinding to come. Investors are unabashedly long stocks and technology stocks betting that any policy unwinding would be gradual. Indeed, a monthly BofA survey earlier this week showed that investors had expected the Fed to raise interest rates only twice next year.
MSCI Inc.’s Asia-Pacific index is down for a fifth session in six outings, with Chinese tech stocks sliding more than 2%. U.S. and European equity futures are in the red after the Nasdaq 100 sank the most since September. Elsewhere, oil is lower for the first time in three days and Bitcoin fell below the $47,000 level as central banks globally are prioritising the fight against elevated inflation.
Key developments that should provide more direction to markets on Friday:
Central bank speakers: Fed's Waller, ECB's Rehn
Gold vaults over $1,800 an ounce, a three week high
Russia central bank meeting