news/AAPL/2023.01.03/Dollar posts big gains, U.S. stocks buck global rally.txt

*Global shares edge up, but Wall Street drops*Correlation with dollar softens*Yen takes a breather from recent rallyLONDON/NEW YORK, Jan 3 (Reuters) - The dollar jumped on
Tuesday as oil prices sank, while U.S. stocks bucked a global
equities rally in a macro-packed week that could offer a steer
on when and where U.S. interest rates might peak.The MSCI All-World index fell 0.5%, dragged
by losses in U.S. stocks. The Dow Jones Industrial Average
lost 0.64%, the S&P 500 dropped 0.9%, and the
Nasdaq Composite lost 1.3%.Losses in U.S. stocks were led by a 14.7% tumble in
electric-vehicle maker Tesla after it missed Wall
Street estimates for quarterly deliveries. iPhone maker Apple
Inc dropped 4.3% to its lowest since June 2021
following a rating downgrade due to production cuts in China.The U.S. dollar firmed ahead of Wednesday's
release of the minutes from the Federal Reserve's last meeting,
with expectations they will signal more policy tightening is in
store.A higher dollar walloped oil prices, which also took a
beating from concerns about slowing global economic growth,
especially after data showedChina's factory activity shrank in December."We expect the December FOMC minutes to shed additional
light on Fed officials' policy views for 2023. Note that at the
meeting, the Committee signalled broad expectations for a
substantially higher terminal rate this year," analysts at TD
Securities said in a note.The dollar index jumped 0.97% to 104.66.The euro was the worst-performing currency against the
dollar, falling by the most since late September,
after German regional inflation data showed consumer price
pressures eased sharply in December, thanks in large part to
government measures to contain natural gas bills for households
and businesses.Data on U.S. payrolls this week is expected to show the
labour market remains tight, while EU consumer prices could show
some slowdown in inflation as energy prices ease."Energy base effects will bring about a sizeable reduction
in inflation in the major economies in 2023, but stickiness in
core components, much of this stemming from tight labour
markets, will prevent an early dovish policy 'pivot' by central
banks," analysts at NatWest Markets wrote in a note.They expect interest rates to top out at 5% in the United
States, 2.25% in the EU and 4.5% in Britain and to stay there
for the entire year. Markets, on the other hand, are pricing in
rate cuts for late 2023, with fed fund futures implying
a range of 4.25% to 4.5% by December."The thing that makes me nervous about this year is that we
still do not know the full impact of the very significant
monetary tightening that's taken place across the advanced
world," Berenberg Senior Economist Kallum Pickering said."It takes a good year, or 18 months, for the full effect to
kick in," he said.Central banks have expressed concern about rising wages,
even as consumers have struggled to keep up with the soaring
cost of living and companies are running out of room to protect
their profitability by raising their own prices.But, Pickering said, the labour market tends to lag the
broader economy by some time, meaning that there is a risk that
central banks could be raising interest rates by more than the
economy can withstand."What central banks are inducing is essentially excess
cyclicality, which is - they overstimulated in 2021 and
triggered an inflationary boom and then overtightened in 2022
and triggered a disinflationary recession. It’s exactly the
opposite of what you want central banks to do," he said.EUROPEAN SHARES RALLYOn the markets, European shares rose thanks to gains in
classic defensive sectors, such as healthcare and food and
beverages. Drugmakers Novo Nordisk, Astrazeneca
and Roche were among the biggest positive
weights on the STOXX 600, along with NestleThe STOXX, which lost 13% in 2022, rose 1.2%. The FTSE 100
, the only major European index not to trade on Monday,
rose 1.4%.Markets have for a while priced in an eventual U.S. easing,
but they were badly wrong-footed by the Bank of Japan's shock
upward shift in its ceiling for bond yields.The BOJ is now considering raising its inflation forecasts
in January to show price growth close to its 2% target in fiscal
2023 and 2024, according to the Nikkei.Such a move at its next policy meeting on Jan. 17-18 would
only add to speculation of an end to ultra-loose policy, which
has essentially acted as a floor for bond yields globally.The policy shift has boosted the yen across the board, with
the dollar losing 5% in December and the euro 2.3%.The yen took a breather on Tuesday, easing 0.4% against the
dollar to 130.69. The dollar earlier touched a six-month low of
129.52 yen.Oil succumbed to the strength of the dollar, and concern
about demand in China, the world's second-largest economy, added
to the downward momentum.A batch of surveys has shown China's factory activity shrank
at the sharpest pace in nearly three years as COVID infections
swept through production lines."China is entering the most dangerous weeks of the
pandemic," warned analysts at Capital Economics.Brent crude lost 3% to trade around $83.32 a barrel.(Reporting by Wayne Cole; Editing by Bradley Perrett, Sam
Holmes, Chizu Nomiyama and Andrea Ricci)