By Peter Nurse
Investing.com -- The hawks within the Federal Reserve, and the European Central Bank, are becoming more prominent, suggesting more rate hikes are on the agenda. President Biden seeks to lower tensions with China, while the U.K. shoppers came out in force in January. Stocks are seen opening lower, along with the crude market, but DoorDash is set to buck the trend after strong quarterly results. Here's what you need to know in financial markets on Friday, 17th February.
1. Central bank hawks fight back
The Federal Reserve decided to hike interest rates by just 25 basis points earlier this month, and this was perceived as signaling that the end of its tightening cycle was in sight.
However, the recent strong economic data, including inflation proving stickier than expected, has provided the hawks within the central bank with the ammunition to fight back.
Federal Reserve Bank of Cleveland President Loretta Mester said Thursday she had seen a “compelling economic case” for rolling out another 50 basis-point hike, and St. Louis President James Bullard said he wouldn’t rule out voting for such a move.
Such bellicose talk hasn’t been confined to the Fed.
A day after European Central Bank President Christine Lagarde cemented another half-point hike next month, her colleague Isabel Schnabel said investors risk underestimating the persistence of inflation.
“We are still far away from claiming victory,” Isabel Schnabel said, citing the strength of underlying price pressures and faster wage increases, adding “we may have to act more forcefully.”
2. Biden seeks talks with Xi
President Joe Biden sought to reduce the political tensions between Washington and Beijing over the shooting down of an alleged Chinese spy balloon earlier this month, saying on Thursday that he expects to speak with China's president, Xi Jinping, in due course.
"We are not looking for a new cold war," Biden said.
In turn, China said Friday it would limit the scope of its register of “unreliable entities”, a blacklist Beijing used against two U.S. defense firms for selling weapons to Taiwan at the height of its trade war with the U.S.
Meanwhile, Bao Fan, the chairman and CEO of China Renaissance, has disappeared, resulting in the shares of the investment bank falling by as much as 50% earlier Friday.
The high-profile banker is the latest in a series of prominent Chinese businessmen going missing during an anti-corruption campaign spearheaded by President Xi Jinping.
3. U.S. stocks to open lower; DoorDash soars
U.S. stock markets are set to open lower Friday, continuing the previous session’s selloff as strong inflation data and hawkish comments by Federal Reserve officials reignited fears about interest rates.
By 6:05 ET (11:05 GMT), Dow Jones futures were down 200 points, or 0.6%, S&P 500 futures were down 0.8% and Nasdaq 100 futures were down 1.1%.
The Fed is widely expected to raise interest rates by another quarter of a percentage point when it meets next month, but this week’s stronger-than-expected consumer and producer prices suggest the U.S. central bank may continue hiking rates for longer than previously expected.
There are more Fed policymakers scheduled to speak later Friday, including Richmond Fed President Tom Barkin and Fed Governor Michelle Bowman.
In the corporate sector, DoorDash (NYSE:DASH) stock traded sharply higher premarket after the online food delivery company reported strong fourth-quarter growth.
DraftKings (NASDAQ:DKNG) stock also soared after the sports betting company recorded a smaller loss than expected in the fourth quarter, and lifted its 2023 sales outlook.
4. U.K. retail sales show surprising strength
The U.K. consumer has proved to be pretty resilient as the country’s retail sales rose unexpectedly last month, suggesting shoppers are coping with a severe cost-of-living squeeze better than initially thought.
Retail sales rose 0.5% in January after a 1.2% decline in December, the Office for National Statistics said Friday.
“Discounting helped boost sales for online retailers as well as jewelers, cosmetic stores and carpet and furnishing shops,” said Darren Morgan, director of economic statistics at the ONS.
That said, it’s important not to draw too many conclusions from a small data set, and the road ahead looks likely to be a rocky one with prices continuing to climb, albeit at a slower rate.
5. Crude slumps on U.S. recession concerns
Crude oil prices fell Friday on worries that rising interest rates will cause the U.S. economy, the largest consumer of crude in the world, to fall into recession this year.
Additionally, the U.S. dollar soared to a six-week high, meaning that oil, which is denominated in dollars, becomes more expensive for foreign buyers.
By 06:05 ET, U.S. crude futures were down 2.6% at $76.44 a barrel, while Brent crude was down 2.4% at $83.06 a barrel. Both benchmarks were headed for a weekly decline of more than 3%.
Elsewhere, European natural gas futures fell to their lowest level in 17 months, down more than 80% from their August peak, as the region’s worst energy crisis in decades recedes, impacted by relatively mild weather as well as efforts to reduce energy consumption.
The European Commission is set to have talks on whether voluntary demand cuts in the European gas market need to be extended beyond March, Bloomberg reported.
“We believe that Europe will need to continue to see demand destruction through the course of the year in order to ensure the market is kept in balance,” said analysts at ING, in a note. “However, we believe demand cuts needed beyond March can be more modest at around 10%.”