European stocks wavered and euro-area bond yields surged on Tuesday, as hot inflation reports ramped up the stakes for the region’s central bank to battle price pressures.
(Bloomberg) — European stocks wavered and euro-area bond yields surged on Tuesday, as hot inflation reports ramped up the stakes for the region’s central bank to battle price pressures.
The Stoxx 600 pared an early loss to trade little changed after clocking up a 1.7% gain for February. US contracts were rangebound after a solid day of gains for the S&P 500 and tech-heavy Nasdaq 100 on Monday.
The yield on two-year German government bonds jumped as much as 9 basis points to 3.17%, the highest since 2008, in the wake of reports that showed accelerating inflation in France and Spain. Treasury yields advanced, with the 10-year benchmark climbing two basis points but still below a key 4% threshold.
The latest set of data are likely to harden the resolve of central banks to keep ratcheting up rates to defuse still-hot inflation and resilient economies. French inflation accelerated to a record in February, while Spanish inflation unexpectedly quickened in February on higher electricity and food cost, increasing pressure on the European Central Bank to deliver more interest-rate hikes.
“It is too early to expect signs of disinflation,” said Agnes Belaisch, chief European strategist at Barings Investment Institute. “This is why the ECB is bang on about the continued need to tighten until the data signals become clearer.”
Read more: Markets See 4% ECB Rates After French, Spain Inflation Surprises
Both US and European stocks ended last week with their biggest five-day drop this year on mounting concern that central banks are losing control over inflation and will need to hold borrowing costs higher for longer.
Investor sentiment toward stocks is becoming more pessimistic as they build short bets in both US and European equity futures, according to Citigroup Inc. strategists. In a “markedly more bearish” swing last week, traders added nearly $3 billion of new shorts to S&P 500 futures positioning and pulled a net $5.1 billion from exchange-traded funds, the team led by Chris Montagu said. In Europe, wagers on a decline in the Euro Stoxx 50 tripled, albeit from a low base, they said.
US data on Monday further outlined the challenge facing the central bank. Pending home sales increased in January by the most since June 2020. Durable goods orders fell, but after accounting for a drop in transportation equipment rose more than expected. Orders placed with factories for business equipment also rose.
Traders are now pricing US rates to peak at 5.4% this year, compared with about 5% just a month ago. Federal Reserve Governor Philip Jefferson firmly stood by the central bank’s 2% inflation goal on Monday. A series of hawkish Fed speak this month has trimmed January’s gains across markets.
Read More: Traders See US Economy as a Balloon Directed by Multiple Forces
Elsewhere, oil was set for a fourth straight monthly decline as concerns about tighter monetary policy and swelling stockpiles in the US eclipsed optimism about rising demand in China. Gold headed for its worst month since the middle of 2021.
Key events this week:
- US wholesale inventories, Conf. Board consumer confidence, Tuesday
- China manufacturing PMI, non-manufacturing PMI, Caixin manufacturing PMI, Wednesday
- Eurozone S&P Global Eurozone Manufacturing PMI, Wednesday
- US construction spending, ISM Manufacturing, light vehicle sales, Wednesday
- Eurozone CPI, unemployment, Thursday
- US initial jobless claims, Thursday
- Eurozone S&P Global Eurozone Services PMI, PPI, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.1% as of 10:47 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 fell 0.3%
- The MSCI Emerging Markets Index fell 0.5%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0612
- The Japanese yen fell 0.4% to 136.67 per dollar
- The offshore yuan was little changed at 6.9579 per dollar
- The British pound rose 0.2% to $1.2093
Cryptocurrencies
- Bitcoin fell 0.2% to $23,349.13
- Ether fell 0.1% to $1,625.58
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.93%
- Germany’s 10-year yield advanced five basis points to 2.63%
- Britain’s 10-year yield advanced two basis points to 3.83%
Commodities
- Brent crude rose 1% to $83.28 a barrel
- Spot gold fell 0.4% to $1,809.09 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Tassia Sipahutar and Sagarika Jaisinghani.
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