Equity Markets – Fresh From the Oven

Equity markets rose in China, with expectations of slower rate increases and increased risk asset gains worldwide. Oil climbed as the dollar fell.

After the S&P 500 and Nasdaq 100 increased more than 2% on Friday, Wall Street equity futures markets to further gains. Lululemon Athletica Inc. dropped in premarket trading after its gross margin forecast for the fiscal second quarter was trimmed. Mining and energy shares led the rally in Europe’s Stoxx 600 Index. It gained as optimism about China’s demand for raw materials boosted.

After rising more than 20% from its October low, the MSCI Emerging Markets Index is on track to enter a bull market. When China shifted its focus to a COVID strategy and provided more economic policy support, Chinese equity markets rose.

Bets Are Fueled for Inflation Report Due This Week

Traders pay attention to the US December inflation numbers scheduled for Thursday. Particularly, with unemployment at its lowest level in decades and wage gains modest, the jobs data released last week failed to provide a clear picture. Officials will have a tough time balancing inflation and employment, according to Esther George of the Kansas City Fed. Some have predicted that the rates would be higher and stay there for longer than previously expected.

Investors anticipate the policy rate to reach less than 5% this cycle, down from 5.06% before Friday’s employment data. Swaps contracts are the primary advocates. With 32 basis points of tightening priced in, merchants seem likely to see a quarter-point move rather than a half-point increase in February.

Analysts Predict a Gloomy Outlook for Equities

Meanwhile, Morgan Stanley analysts warned that US shares would fall much more than many pessimists anticipate in the event of a recession. This would exacerbate their worst yearly loss since the 2008 global financial crisis.

Michael Wilson is a long-time critic of US equity markets. According to him, investors are generally gloomy about the future of economic growth. However, corporate profit expectations are still too high, and the equity risk premium is at its lowest since the boom in 2008. The S&P 500 may fall by as much as 22% from current levels.

Thousands of supporters of former President Jair Bolsonaro stormed the country’s top government institutions. This insurgency will test President Luiz Inacio Lula da Silva’s leadership just a week after he took power. That’s another “watch out” for analysts.