Global shares ease as central bank rate hikes loom

Global stocks fell on Monday as investors braced for the last round of transatlantic interest rate hikes this year from a trio of central banks, hoping that a hitherto hefty pace of increases in borrowing costs will finally show signs of easing.

Oil prices rose as a key pipeline supplying the United States remained shut, while Russian President Vladimir Putin threatened to cut production in retaliation for a Western price cap on its exports.

The dollar rose against the Japanese yen but eased against a basket of currencies after data on Friday showed US producer prices had risen more than expected last month, pointing to persistent inflationary pressures, ahead of key US consumer price index for November on Tuesday, when a slowdown in core annual inflation is anticipated, reported Reuters.

"A heavy event risk calendar this week stands to define the core themes for 2023," ING bank said.

Market consensus was still "underappreciating" the risk of inflation staying higher longer, and "dangerously second-guessing" the Fed in terms of rate cuts in the second half of next year, ING said.

The MSCI all country stock index (.MIWD00000PUS) was down 0.3%, the benchmark having lost about 18% so far this year, wiping out all gains chalked up in 2021.

In Europe, the STOXX index (.STOXX) of 600 companies was down 0.7%.

Economists expect the Federal Reserve on Wednesday, and the European Central Bank and Bank of England on Thursday to all raise rates by 50 basis points, still a slowing down from the 75 basis point hikes seen in recent meetings.

Patrick Spencer, vice chair of equities at Baird investment bank, said central banks will start taking a less aggressive stance this week, though Tuesday's CPI data will be critical.

"It's the last important week of the year, after this week you've got no real sort of catalysts. If the CPI is a muted number, we're off to the races and we'll get our year-end rally," Spencer said.

But irrespective of the CPI, deflationary pressures are increasing, with crude oil prices down for the year, and iron ore, lumber and house prices also down, Spencer said.

"All this talk of recession, I think it is certainly in the price, it's in the markets. The key about recession is generally employment, and I think employment is going to be stronger than people give it credit, " Spencer said.

Both the S&P 500 futures and Nasdaq futures were little changed.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) slumped 1.2%, erasing almost all of the previous week's gains stemming from optimism that China is finally opening up its economy with the dismantling of its zero-COVID policy.