European Stocks Track Asia Lower on Fed Rate Bets: Markets Wrap

(Bloomberg) — European stocks followed New York and Asia lower after traders pushed back expectations of interest rate cuts by the Federal Reserve to later in 2024 following strong US economic data.

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The Stoxx Europe 600 benchmark slipped about 0.8% at the open, on track for its first weekly decline in three. All industry sectors were in the red, with technology stocks and utilities leading the decline. Contracts for US shares were little changed after the S&P 500 Index fell the most this month, while Treasury yields inched lower. The dollar was steady against a basket of peers, on track for its biggest weekly gain since early April.

Swaps now fully price the Fed’s first full quarter-point rate cut in December, versus November a day earlier. Growth in activity at service providers was the fastest in a year and manufacturing output expanded at a quicker pace. Such resilience is making it difficult for inflation to cool, thus the Fed is likely to keep rates higher for longer.

“It appears that markets are in the ‘good (economic) news is bad market news’ mode as they fret over ‘higher-for-longer’ Fed,” said Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank Ltd. “The weight of higher US yields and a stronger US dollar appear to be bearing down” on stocks, he said.

Atlanta Fed President Raphael Bostic on Thursday reinforced the chorus from officials this week that the central bank needs to be patient on its next move as there is still considerable upward pressure on prices. Minutes of the Fed’s May meeting released this week showed policy makers coalesced around a desire to hold rates higher for longer and “many” questioned whether policy was restrictive enough to bring inflation down to their target.

Investors will be watching the shift to the adoption of a new faster settlement cycle in the US, which the country’s securities regulator warned may trigger some failed trades initially, after Wall Street returns from Monday’s holiday. The long weekend in America might also reduce liquidity in some markets.

In Asia, a gauge of regional equities was on pace for its worst day since May 8, extending its weekly losses, as shares from Hong Kong to mainland China, Japan and Australia fell. An index of Chinese shares in Hong Kong was on track for its worst week since January.

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Alibaba Group Holding Ltd. has raised $4.5 billion from a convertible bond sale, in one of the largest such offerings in recent years, according to people familiar with the matter. In Japan, Kobayashi Pharmaceutical Co. shares surged after Oasis Management CIO Seth Fischer said there’s a potential for the stock to jump 70% if the Japanese drugmaker engages with the activist fund.

Adani Group’s flagship unit surged in India to erase all the losses triggered by a short sale report from Hindenburg Research in January 2023. The gains were driven by optimism around Adani Enterprises Ltd.’s inclusion in the nation’s benchmark stock index, the review of which is due later Friday.

In commodities, oil declined after hitting its lowest level in over three months on Thursday as the market flashed signs of weakness ahead of the US summer driving season. Elsewhere, gold climbed after three days of declines.

Key events this week:

• Canada retail sales, Friday

• Germany GDP, Friday

• US durable goods, consumer sentiment, Friday

• Fed’s Christopher Waller speaks, Friday

Some of the main market moves:

Stocks

• The Stoxx Europe 600 fell 0.7% as of 8:10 a.m. London time

• S&P 500 futures were little changed

• Nasdaq 100 futures were little changed

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific Index fell 0.9%

• The MSCI Emerging Markets Index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0818

• The Japanese yen was little changed at 157.06 per dollar

• The offshore yuan was little changed at 7.2574 per dollar

• The British pound was unchanged at $1.2699

Cryptocurrencies

• Bitcoin fell 1.1% to $66,975.51

• Ether fell 2.4% to $3,667.9

Bonds

• The yield on 10-year Treasuries declined one basis point to 4.46%

• Germany’s 10-year yield was little changed at 2.59%

• Britain’s 10-year yield declined one basis point to 4.25%

Commodities

• Brent crude fell 0.1% to $81.27 a barrel

• Spot gold rose 0.4% to $2,339.18 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu.

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