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Stocks, US Futures Drop as Dollar Extends Gains: Markets Wrap

(Bloomberg) — European stocks and US futures retreated, while the dollar rose to a one-month high as the market digested the latest comments from central bank officials pushing back against bets on aggressive interest rate cuts.

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The Stoxx Europe 600 index headed for a five-week low, with banks leading the decline after JPMorgan Chase & Co. analysts predicted earnings downgrades due to lower rates. Futures on the S&P 500 slipped 0.5%, while contracts on the more rate-sensitive Nasdaq 100 dropped as much as 0.9%. Treasuries declined on the first trading day since Friday, with 10-year and the policy-sensitive 2-year yields rising about six basis points each.

It’s too early to declare victory on inflation, European Central Bank Governing Council member Francois Villeroy de Galhau said in Davos, Switzerland, where he is attending the World Economic Forum. Traders are awaiting Federal Reserve Governor Christopher Waller’s speech later Tuesday for cues on the timing of a Fed rate cut, with money markets seeing a two-in-three chance of a reduction in March.

“Central banks pushing back on rate cuts is not helping risky assets,” said Mohit Kumar, chief European economist at Jefferies International. “The debate in the financial markets is focused on the timing of rate cuts. As we have argued in last few notes, the market has gone a bit ahead of itself in pricing in rate cuts.”

Stocks pared losses after the ECB’s monthly survey showed consumer expectations for euro-zone inflation fell to the lowest in more than 1 1/2 years in November. Money markets held interest-rate cut wagers broadly steady after the ECB data, pricing the first quarter-point reduction by April followed by almost five more by year-end.

ECB Governing Council member Robert Holzmann indicated on Monday that cuts this year were not assured given lingering inflation and geopolitical risks. His sentiments echoed prior comments from ECB President Christine Lagarde warning that it’s too early to talk about trimming borrowing costs. A raft of ECB speakers are on the WEF roster for Wednesday.

Economic data in the UK, meanwhile, supported the case for Bank of England rate cuts in the coming months, with wage growth cooling at one of the fastest paces on record. The pound weakened as much as 0.5% against the dollar and gilt yields edged lower.

READ: A Pessimist’s Guide to Global Economic Risks in 2024

Morgan Stanley and Goldman Sachs Group Inc. are among the companies reporting results Tuesday, and are expected to reveal the continued lull in investment banking activity as high borrowing costs, geopolitical tensions and recessionary risks dampen deal-making.

Elsewhere, oil prices were steady as continued Houthi attacks on ships in the Red Sea that are keeping tensions high in the Middle East were offset by a shaky global economic outlook and gains in the dollar. Global benchmark Brent held above $78 a barrel, while West Texas Intermediate traded below $73.

The MSCI Asia Pacific Index slid 1.3%, halting a three-day rally, with Hang Seng Index headed for the worst day in about two months as property-sector funding plans hurt bank shares.

Some key events in markets this week:

  • US Empire Manufacturing, Tuesday

  • Goldman Sachs Group Inc., Morgan Stanley to report earnings, Tuesday

  • Federal Reserve Governor Christopher Waller speaks, Tuesday

  • China GDP, property prices, retail sales and industrial production, Wednesday

  • Eurozone CPI, Wednesday

  • UK CPI, Wednesday

  • US retail sales, industrial production, business inventories, Wednesday

  • Federal Reserve issues Beige Book survey, Wednesday

  • European Central Bank President Christine Lagarde speaks at Davos, Wednesday

  • New York Fed President John Williams speaks, Wednesday

  • Australia unemployment, Thursday

  • Japan industrial production, Thursday

  • European Central Bank publishes account of December policy meeting, Thursday

  • US housing starts, initial jobless claims, Thursday

  • Atlanta Fed President Raphael Bostic speaks, Thursday

  • Japan CPI, Friday

  • US existing home sales, University of Michigan consumer sentiment, Friday

  • US Congress faces deadline to pass spending agreement before part of federal government shuts down, Friday

  • San Francisco Fed President Mary Daly speaks, Friday

Here are some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 fell 0.5% as of 9:48 a.m. London time

  • S&P 500 futures fell 0.5%

  • Nasdaq 100 futures fell 0.7%

  • Futures on the Dow Jones Industrial Average fell 0.4%

  • The MSCI Asia Pacific Index fell 1.5%

  • The MSCI Emerging Markets Index fell 1.3%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.6%

  • The euro fell 0.6% to $1.0886

  • The Japanese yen fell 0.6% to 146.59 per dollar

  • The offshore yuan fell 0.4% to 7.2134 per dollar

  • The British pound fell 0.7% to $1.2638

Cryptocurrencies

  • Bitcoin rose 0.6% to $42,927.51

  • Ether rose 0.7% to $2,537.66

Bonds

  • The yield on 10-year Treasuries advanced six basis points to 4.00%

  • Germany’s 10-year yield was little changed at 2.23%

  • Britain’s 10-year yield declined two basis points to 3.78%

Commodities

  • Brent crude rose 0.6% to $78.58 a barrel

  • Spot gold fell 0.8% to $2,039.32 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Divya Patil and Lynn Thomasson.

(A previous version corrected headline, first paragraph to say dollar is headed for a one-month high.)

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©2024 Bloomberg L.P.

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