European steadied near the highest level in four months as traders added to wagers central bankers are preparing a global policy pivot toward rate cuts.
The Stoxx 600 index gained for a second day as US equity futures advanced. Merck KGaA plunged 13% after the Evobrutiniban trial failure dealt a blow to the German company’s plans of creating another blockbuster medicine. Bonds paused a rally that took the US 10-year yield below 4.2% Tuesday.
ADVERTISEMENT
CONTINUE READING BELOW
It was action in Europe that triggered the latest move up in bonds, after the European Central Bank’s most-hawkish officials Tuesday said inflation is showing a “remarkable” slowdown. The rally found more momentum from weaker-than-forecast jobs-market data out of the US Tuesday seen as evidence that inflationary wage pressures were easing, giving the Federal Reserve room to start cutting rates.
Markets have now fully priced six quarter-point rate cuts by the European Central Bank in 2024 for the first time, a move that would take the key rate down 150 basis points to 2.5%. There’s also an almost 90% chance of the easing cycle starting in the first quarter of next year, a scenario that was barely contemplated just three weeks ago.
The big debate for markets is whether recent dovish commentary from central bankers is tantamount to assurance they are preparing to pivot to easy policy, Craig Erlam, senior market analyst at Oanda, wrote in a note to clients.
“Whether that’s been enough to warrant such optimism is what many are now questioning,” he said.
Overstretched technicals and the belief that the Federal Reserve won’t cut interest rates as quickly as markets expect prompted bearish warnings from Goldman Sachs Group Inc., JPMorgan Chase & Co and Morgan Stanley Tuesday.
ADVERTISEMENT
CONTINUE READING BELOW
Key events this week:
- Eurozone retail sales, Wednesday
- Germany factory orders, Wednesday
- US ADP private payrolls, trade balance, Wednesday
- CEOs of the biggest banks on Wall Street, including JPMorgan, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America, expected to testify on regulatory oversight to the Senate banking committee, Wednesday
- Bank of Canada monetary policy meeting, Wednesday
- Bank of England issues biannual stability report on UK financial system, holds news conference, Wednesday
- China trade, forex reserves, Thursday
- Eurozone GDP, Thursday
- Germany industrial production, Thursday
- US wholesale inventories, initial jobless claims, Thursday
- Germany CPI, Friday
- Japan household spending, GDP, Friday
- Reserve Bank of Australia’s head of financial stability Andrea Brischetto speaks at Sydney Banking and Financial Stability conference, Friday
- US jobs report, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.2% as of 9:50 a.m. London time
- S&P 500 futures rose 0.2%
- Nasdaq 100 futures rose 0.3%
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index rose 1%
- The MSCI Emerging Markets Index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0792
- The Japanese yen was little changed at 147.27 per dollar
- The offshore yuan was little changed at 7.1675 per dollar
- The British pound was little changed at $1.2601
Cryptocurrencies
- Bitcoin was little changed at $43,873.01
- Ether rose 0.3% to $2,279.79
Bonds
- The yield on 10-year Treasuries advanced two basis points to 4.18%
- Germany’s 10-year yield advanced one basis point to 2.26%
- Britain’s 10-year yield advanced four basis points to 4.07%
Commodities
- Brent crude fell 0.3% to $77 a barrel
- Spot gold rose 0.2% to $2 023.14 an ounce
© 2023 Bloomberg
