LONDON, March 7 (Reuters) – Global shares eased and the dollar rose on Tuesday, ahead of Federal Reserve Chair Jerome Powell’s testimony that could offer a steer on the outlook for U.S. rates, while weak Chinese trade data dented oil and copper.
Data showed China’s exports and imports both fell sharply in January-February, reflecting a slowdown in the global economy and weak domestic demand, knocking Chinese blue chips (.CSI300), while the offshore yuan edged up against the dollar.
Shipments of some raw materials into China dropped over those two months, stirring some concern that activity in the world’s largest commodity importer might be sputtering.
Beyond China, investor focus remains on the U.S. interest rate outlook and what Powell may say.
“Over the last few weeks, data out of the U.S. has been far more resilient than expected, fuelling bets that the Fed will have to raise rates beyond what was communicated earlier and rates will stay elevated for longer as well,” strategists at Saxo Bank said.
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“Most Fed members have also sounded hawkish, raising the prospect of a shift higher in March dot plot. If a similar message is conveyed by Chair Powell, we could see U.S. Treasury yields rising again and the dollar reversing back to an uptrend,” they said.
The MSCI All-World index of global shares (.MIWD00000PUS) edged down by 0.1%, but held near Monday’s two-week highs.
Yields on benchmark 10-year Treasury notes , which have more than doubled in the past 12 months, were last down 4 basis points on the day at 3.942%.
Yields on the two-year note , which are more sensitive to changes in interest rate expectations, were down 2 bps at 4.876%. Two-year yields have more than trebled in the last year to almost 5%, their highest since 2007.
Money markets show traders believe U.S. rates will peak just shy of 5.5% by September, from a range of 4.50%-4.75% right now.
The expected peak was closer to 4.7% just a month ago.
POWELL POINTERS
Powell starts his semi-annual two-day testimony before Congress on Tuesday. Investors will monitor his remarks for any insight into his thinking on where U.S. rates will likely head.
Futures traders are pricing in a 76% probability the Fed will raise rates by 25 bps at its March 21 to 22 meeting and a 24% likelihood of a 50-bps increase.
The U.S. February employment report is expected on Friday and any softening in the robust jobs market will be seen as a sign that the Fed’s rate hikes are having their desired effect.
Bank of America (BAC.N) Chief Executive Brian Moynihan on Tuesday told a Sydney business summit that the bank predicted the U.S. economy would reach a technical recession later this year before the central bank begins cutting rates in 2024.
“It’s a very slight recession in the scheme of things. I don’t think you’ll see a deep recession,” he said.
“In our view that is based on a corporate side or a commercial side slowdown, not a consumer side slowdown.”
With concern about demand in China weighing on sentiment, European shares reversed earlier gains, with basic resources and luxury retailer stocks leading the declines. The STOXX 600 (.STOXX) was down 0.1%, having gained as much as 0.3% earlier.
U.S. stock futures rose, with S&P 500 e-minis up 0.2% and Nasdaq 100 futures up 0.3%.
A number of major central banks deliver policy decisions this week.
The Reserve Bank of Australia on Tuesday raised interest rates, as expected, but tempered its hawkish outlook, which investors took as a sign the end to the policy tightening cycle make be near. That pushed the Australian dollar to a more than two-month low of $0.6664, marking a loss of 1% on the day.
The dollar rose against a basket of major currencies, thanks to gains against the euro and sterling, which fell 0.2% and 0.3%, respectively.
The dollar pared earlier losses against the yen to trade up 0.2% at 136.19, near last week’s 2023 high at 137.10.
Chinese trade data on Tuesday showed products such as unwrought copper and crude oil fell in the first two months of the year, raising questions about industrial demand.
Brent crude futures slid 0.5% to $85.73 a barrel, while copper futures on the London Metal Exchange fell for a second day, losing 0.6% to trade around $8,867 a tonne.
Additional reporting by Scott Murdoch in Sydney; Editing by Jamie Freed, Sam Holmes, Ed Osmond and Shounak Dasgupta
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