European Bonds and Stocks Gain on Rate Cut Bets: Markets Wrap

(Bloomberg) — European stocks rose and bond yields across the euro area fell on Wednesday as worsening economic data and easing inflation underscored expectations for interest rate cuts next year.

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Germany’s 10-year government bond yield fell below 2% for the first time in nine months after a report showed producer prices fell more than expected in November. The Stoxx Europe 600 index rose about 0.4%, led by interest rate-sensitive real estate and retail stocks.

Britain’s FTSE 100 benchmark performed better, rising as much as 1.3% after data showed inflation slowed more in November than analysts had estimated, bolstering the case for a Bank of England pivot to rate cuts next year underpinned. The pound fell to a three-week low and the 10-year British government bond yield fell 11 basis points.

Traders are betting that slowing inflation and slowing economic growth will prompt the European Central Bank to start cutting interest rates next year. Money markets are pricing in an almost 50 percent chance of an interest rate cut by the ECB by March next year.

A gauge of German business expectations released earlier this week unexpectedly deteriorated in December, while euro area purchasing managers’ indexes contracted for a seventh month. Analysts polled by Bloomberg forecast the region is entering its first recession since the pandemic. At the same time, inflation in the euro area continues to slow, reaching 2.4% in November after peaking at over 10% last year.

US stock futures were flat after the Nasaq 100 hit another record. The 10-year Treasury yield fell two basis points to 3.91%.

Speculation about Fed easing is making investors the most optimistic since early 2022, a Bank of America Corp. survey shows. revealed on Tuesday. Traders have also abandoned bets on higher short-term U.S. yields as investors shy away from the urge to buck the dovish trend.

The story goes on

Richmond Federal Reserve President Thomas Barkin reinforced the more dovish tone, suggesting the Federal Reserve would cut interest rates if recent gains in inflation continue. But other policymakers have pushed back more aggressively against rate-cut bets. Chicago Fed President Austan Goolsbee and Cleveland Fed President Loretta Mester suggested Monday that expectations were premature.

Investors are waiting for U.S. data including existing home sales on Wednesday, third-quarter gross domestic product numbers on Thursday and durable goods orders and personal consumption expenditures on Friday – the Fed’s preferred measure of inflation – to solidify their interest rate bets .

Meanwhile, benchmark Japanese government bond yields fell to their lowest level since the Bank of Japan tweaked yield curve control in late July. Meanwhile, the Nikkei 225 stock gauge rose to its highest level in more than five months after the central bank left investors uncertain about when it might adjust monetary policy. The yen rose for the first time in four days.

“A weaker USD, weaker European yields and a positive rally on Wall Street overnight as a benchmark set the stage for a good start,” said Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank Ltd. in Singapore. “A weaker JPY due to the BOJ rebound that boosted the Nikkei also served as a good complement to rallies in the US for equity bulls in Asia.”

In the corporate world, Eddie Wu, chief executive officer of Alibaba Group Holding Ltd., will take over the company’s core e-commerce business, replacing one of its most experienced executives at the helm of China’s largest online marketplace.

Oil prices were little changed after two days of gains as traders and shippers braced for the prospect of more disruption in the Red Sea. Gold also remained stable.

Important events this week:

  • US Conference Board Consumer Confidence, Existing Home Sales, Wednesday

  • Bank Indonesia interest rate decision, Thursday

  • US GDP, Initial Jobless Claims, Conf. Leading board index, Thursday

  • Nike results, Thursday

  • Inflation in Japan, Friday

  • UK GDP, Friday

  • U.S. personal income and spending, new home sales, durable goods, University of Michigan consumer sentiment index, Friday

Some of the key moves in the markets:

Shares

  • The Stoxx Europe 600 was up 0.4% at 8:18 a.m. London time

  • S&P 500 futures were little changed

  • Nasdaq 100 futures were little changed

  • The futures on the Dow Jones Industrial Average hardly changed

  • The MSCI Asia Pacific index rose 0.6%

  • The MSCI Emerging Markets Index rose 0.3%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro fell 0.1% to $1.0968

  • The Japanese yen rose 0.2% to 143.54 per dollar

  • The offshore yuan fell 0.2% to 7.1355 per dollar

  • The British pound fell 0.6% to $1.2659

Cryptocurrencies

  • Bitcoin rose 0.9% to $42,869.03

  • Ether rose 1.2% to $2,211.99

Tie up

  • The 10-year Treasury yield fell two basis points to 3.91%

  • The yield on 10-year German government bonds fell by two basis points to 2.00%

  • The 10-year UK government bond yield fell 11 basis points to 3.54%

raw materials

This story was produced with support from Bloomberg Automation.

– With support from Tassia Sipahutar and Yumi Teso.

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