European stocks struggled to build on Friday’s strong rebound as traders assessed hawkish comments from policy makers and disappointing data from the region’s biggest economy. Bond yields across Europe rose.
(Bloomberg) — European stocks struggled to build on Friday’s strong rebound as traders assessed hawkish comments from policy makers and disappointing data from the region’s biggest economy. Bond yields across Europe rose.
The Stoxx Europe 600 index edged higher, with energy stocks outperforming as crude oil gained. With UK markets closed for a a holiday in honor of King Charles III, trading volumes were relatively modest. The German 10-yield climbed 3 basis points.
US futures fluctuated after the S&P 500 jumped 1.9% Friday to halt its longest losing streak since February. PacWest Bancorp rose as much as 16% in premarket trading Monday, extending Friday’s brisk rally and leading gains in US regional banks as they recover from a selloff fueled by worries over the health of the financial system and the recent collapse of several lenders. A gauge of the dollar slipped for a fifth straight day.
Stocks have rallied since mid-March as as better-than-feared corporate earnings outweighed broader concerns around an economic slowdown. But while the Federal Reserve has signaled that it may pause its tightening cycle, its counterpart in the euro region isn’t done yet, muddying the outlook for economic growth and corporate profits.
The European Central Bank needs to continue raising interest rates amid a “too high” underlying inflation rate, Governing Council member Klaas Knot said Sunday. ECB President Christine Lagarde also signaled that there are more hikes to come after the central bank last week raised the deposit rate by a quarter-point to 3.25%, following three moves of double that size.
Meanwhile, a report Monday showed German industrial production sank by the most in a year — raising the risk that Europe’s largest economy slipped into a winter recession. Output dropped 3.4% in March, more than the 1.5% decline economists had predicted in a Bloomberg survey. The decrease was especially pronounced in the automotive sector, according to the statistics office.
US payroll data published Friday showed hiring and worker pay gains accelerated in April in signs of labor-market resilience and inflationary pressures in the face of headwinds. The solid data has tempered fears of a US recession. The employments figures also increased speculation the Federal Reserve will keep interest rates higher for longer and potentially leave the door open to an 11th straight hike in June.
Rates on swap contracts linked to Fed meetings — which on Thursday briefly priced in a cut in July — moved higher, to levels consistent with a stable policy rate until September, followed by at least two quarter-point cuts by year-end.
“Unless we see a sharp turnaround in the inflation numbers, the Fed ought to be quite comfortable with where policy rates are right now,” Tai Hui, chief Asia market strategist at JPMorgan Asset Management, said on Bloomberg Television.
Worries Remain
Despite Friday’s stock rebound, investors still have much to worry about. The rout in US bank shares has the S&P 500 financials index on the verge of falling back below its 2007 peak.
Meanwhile, Treasury Secretary Janet Yellen sees “simply no good options” for solving the debt limit stalemate in Washington without Congress raising the cap. She even cautioned that resorting to the 14th Amendment would provoke a constitutional crisis.
“We see a chance that Treasury’s cash amount is enough to sustain till mid-June and probably slightly beyond that,” Oversea-Chinese Banking Corp. strategists Frances Cheung and Christopher Wong wrote in a note. However, “the irregular nature of fiscal receipts and outlays shall render investors staying cautious,” they said.
Investors are also awaiting the release this week of the US core consumer price index, which excludes food and energy and is closely watched by the Fed. It is projected to show a 5.5% increase in April from a year ago.
Elsewhere in markets, oil gained as investors assessed a complex outlook for global demand after a period of volatile trading. Bitcoin slipped below $28,000.
Key events this week:
- US wholesale inventories, Monday
- US President Joe Biden scheduled to meet with congressional leaders on debt limit, Tuesday
- New York Fed President John Williams speaks to Economic Club of New York, Tuesday
- US CPI, Wednesday
- China PPI, CPI, Thursday
- UK BOE rate decision, industrial production, GDP, Thursday
- US PPI, initial jobless claims, Thursday
- Group of Seven finance minister and central bank governors meet in Japan, Thursday
- US University of Michigan consumer sentiment, Friday
- Fed Governor Philip Jefferson and St. Louis Fed President James Bullard participate in panel discussion on monetary policy at Stanford University, Friday.
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.2% as of 9:49 a.m. London time
- S&P 500 futures were little changed
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average rose 0.1%
- The MSCI Asia Pacific Index rose 0.5%
- The MSCI Emerging Markets Index rose 0.7%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.3% to $1.1053
- The Japanese yen fell 0.1% to 134.94 per dollar
- The offshore yuan was little changed at 6.9209 per dollar
- The British pound rose 0.1% to $1.2651
Cryptocurrencies
- Bitcoin fell 3.8% to $27,860.43
- Ether fell 3.6% to $1,850.67
Bonds
- The yield on 10-year Treasuries was little changed at 3.44%
- Germany’s 10-year yield advanced three basis points to 2.32%
Commodities
- Brent crude rose 1.9% to $76.70 a barrel
- Spot gold rose 0.3% to $2,022.39 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Michael Msika and Tassia Sipahutar.
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