Marketmind: Fed’s ‘slow and steady’ lifts market mood

A look at the day ahead in European and global markets from Ankur Banerjee

All it took was a bit of a hint that the Federal Reserve may stick to its moderate monetary tightening path for the market to attempt a risk-on rally to end the week. Futures indicate that the buoyant mood is set to continue in Europe, with the continent-wide STOXX 600 looking to end yet another week with gains. The index has so far this year registered just three weeks of losses.

While Fed officials wrestled on Thursday with whether a recent string of resilient economic data was a “blip” or a sign that even higher interest rates could be required to slow price rises. Markets took their cues from comments from Atlanta Fed President Raphael Bostic.

“Slow and steady is going to be the appropriate course of action,” he said, arguing for quarter point hikes.

And so, the dollar eased and was on track to clock its first weekly loss since January, while the MSCI Asia ex-Japan index was set to snap its fourth weekly losing run.

Also helping lift sentiment was services sector data from China, reviving the optimism that a robust recovery was well underway. The Caixin/S&P Global services purchasing managers’ index (PMI) rose at the fastest pace in six months to 55.0 in February from 52.9 in January.

Investors will be keenly focused on China’s annual parliament session on Sunday when Beijing will set its economic goals for the year.

But before that, focus swings to the U.S. services ISM for February, scheduled to be released later on Friday.

Meanwhile, data showed core consumer inflation in Japan’s capital Tokyo slowed in February, though an index stripping away the effect of fuel hit a fresh three-decade high in a sign of broadening inflationary pressures. The latest data is likely to keep the pressure on the Bank of Japan to shift away from its ultra loose monetary policy.

In the corporate world, Microsoft is expected to secure EU antitrust approval for its $69 billion acquisition of gaming firm Activision with its offer of licensing deals to rivals, Reuters reported.

Graphic 1: Fed, ECB and BoE ‘terminal rates’ rise, https://fingfx.thomsonreuters.com/gfx/mkt/movakqdqgva/Four.PNG

Graphic 2: China to set growth target for 2023, https://www.reuters.com/graphics/GLOBAL-MARKETS/THEMES/klpygnmarpg/chart.png

Key developments that could influence markets on Friday: https://www.reuters.com/graphics/GLOBAL-MARKETS/THEMES/klpygnmarpg/chart.png

Economic events: Eurozone, Germany and France S&P Global services final PMI for February

(Reporting by Ankur Banerjee; Editing by Sam Holmes)