European stocks followed positive momentum set in Asia as investors brace for inflation data and corporate results that could deliver insights on the health of the financial system.
(Bloomberg) — European stocks followed positive momentum set in Asia as investors brace for inflation data and corporate results that could deliver insights on the health of the financial system.
The Stoxx Europe 600 gained about 0.5%, led by a rally in cyclical industries including miners and automakers. ontracts on the S&P 500 and Nasdaq 100 were slightly higher after a late recovery in post-holiday trading on Wall Street.
Cracks in 2023’s equity advance are appearing, as hedge funds and other speculators amass the deepest short position since November 2011 when the US sovereign credit rating was cut. Widely-watched inflation data is due Wednesday and banks on Friday kick off what’s forecast to be the worst earnings season since the depths of the pandemic crisis as investors remain on edge about the health of the financial system.
“It remains a very tricky trading environment,” Chris Turner, a strategist at ING Bank wrote in a note to clients. “Experienced commentators are refusing to dismiss last month’s events as a one-off and instead prefer to see bank failures as a harbinger of forthcoming stress in the global financial system.”
The dollar edged down after three days of gains, Treasury yields ticked lower and Bitcoin punched above $30,000 for the first time since June as it rallied more than 80% since the start of the year.
The yield on policy-sensitive two-year Treasuries slid below 4%, retreading some of its climb Monday as traders positioned for another Federal Reserve interest-rate hike.
Markets are pricing for a strong likelihood the Fed will raise borrowing by a quarter-point May 3 to contain inflation, after US payrolls rose at a firm pace last month and the unemployment rate dropped. Wednesday’s report on consumer prices, expected to show a 0.4% monthly increase in the core consumer price index, could cement the Fed’s rate path.
A scenario where the Fed halts rate hikes in May, which markets had briefly entertained last month as fragility in banks raised recession fears, looks increasingly remote.
“The Fed has maintained its resolute inflation narrative despite banking sector stress, switching to liquidity tools to tackle the funding squeeze, and keeping its monetary policy toolkit intact,” Mizuho International Plc strategists including Evelyne Gomez-Liechti wrote in a note.
Elsewhere, Japanese shares climbed following the dovish stance of the new Bank of Japan governor, Kazuo Ueda, and on a report that Warren Buffett is turning his focus back to Japan. Ueda has signaled that any significant changes to monetary policy may be unlikely for now. The Nikkei reported that Buffett is looking to increase his exposure to Japanese stocks.
Oil largely reversed Monday’s loss, with West Texas Intermediate trading back above $80 a barrel. Gold was slightly higher and near $2,000 an ounce.
Key events this week:
- IMF global financial stability report, Tuesday
- Chicago Fed’s Austan Goolsbee, Minneapolis Fed’s Neel Kashkari and Philadelphia Fed’s Patrick Harker speak at separate events, Tuesday
- Canada rate decision, Wednesday
- US FOMC minutes, CPI, Wednesday
- Richmond Fed’s Thomas Barkin speaks, Wednesday
- China trade, Thursday
- US PPI, initial jobless claim, Thursday
- US retail sales, business inventories, industrial production, University of Michigan consumer sentiment, Friday
- Major US banks JPMorgan Chase, Wells Fargo and Citigroup report earnings, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.5% as of 9:17 a.m. London time
- S&P 500 futures rose 0.1%
- Nasdaq 100 futures rose 0.2%
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index rose 0.9%
- The MSCI Emerging Markets Index rose 0.5%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.4% to $1.0904
- The Japanese yen rose 0.3% to 133.15 per dollar
- The offshore yuan was little changed at 6.8900 per dollar
- The British pound rose 0.5% to $1.2439
Cryptocurrencies
- Bitcoin rose 3.4% to $30,121.01
- Ether rose 1.9% to $1,921.82
Bonds
- The yield on 10-year Treasuries declined three basis points to 3.38%
- Germany’s 10-year yield advanced five basis points to 2.24%
- Britain’s 10-year yield advanced six basis points to 3.49%
Commodities
- Brent crude rose 0.7% to $84.77 a barrel
- Spot gold rose 0.6% to $2,002.86 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Stephen Kirkland and Brett Miller.
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