Stocks, Bonds Fall as Rally Stalls Before Year-End: Markets Wrap

(Bloomberg) — European stocks slipped, following losses in the US and Asia as traders dial back optimism over possible Federal Reserve interest-rate cuts and trim positions before the long Christmas weekend.

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The autos and real estate sectors led declines as Europe’s Stoxx 600 index retreated 0.3%. The S&P 500 and Nasdaq 100 both dropped 1.5% Wednesday, although futures contracts pointed to a recovery of some of those losses on Wall Street later. Treasuries edged lower, while most currencies traded in narrow ranges with volatility easing as the year-end holiday season approaches.

“The dovish tone by the Fed in December has been grossly over-exaggerated in terms of its impact on asset prices,” Mark Konyn, chief investment officer at AIA Co. in Hong Kong, said on Bloomberg Television. “The market will be little disappointed in terms of when those cuts start to take effect.”

Risk assets are taking a breather after this month’s rally that saw global stocks climb to their highest level in 2023. Overbought conditions in the US have also contributed to the selling as gauges of relative strength rose to levels that in the past have accurately predicted declines.

The MSCI All Country World Index of shares slipped for a second day after it had powered ahead for the previous nine sessions. Japanese stocks were among the biggest losers in Asia led by a selloff in index heavyweight Toyota Motor Corp. The technology-heavy markets of South Korea and Taiwan also dropped.

Mainland China shares bucked the trend, posting their best day since early November after data showed signs of recovery in the country’s ailing property market. Chinese equities appeared to shrug off a Wall Street Journal report, which said the Biden administration is discussing raising tariffs on some China goods, citing people familiar with the matter.

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The dollar weakened against almost all its Group-of-10 peers after US 10-year yields dropped to a five-month low on Wednesday, amid the outlook for lower Fed interest rates.

Toyota Slumps

Toyota Motor shares slumped after subsidiary Daihatsu Motor Co.’s offices were raided over a safety scandal and the automaker recalled 1 million cars in the US. The raid followed revelations the carmaker and supplier manipulated the results of collision safety tests dating as far back as 1989.

While US stocks are at risk of dropping as the rally shows signs of fatigue, investors should buy into these pullbacks, according to Citigroup Inc. strategists. The team including Scott Chronert expects “consistent” sector-level earnings growth and a broadening of the rally beyond mega-cap technology stocks.

Chronert said soft landing sentiment and optimism about lower interest rates helped drive the market action into the year end. “The implication is to expect volatility ahead, but with an eventual Fed pivot as a north star,” he said.

Traders have a clutch of economic data to digest before the Christmas break: US GDP figures and initial jobless claims are among readings on the world’s largest economy due later Thursday, with Nike Inc.’s earnings also likely to provide insights on the state of US consumers. Friday looks potentially busy, featuring UK GDP, US consumer sentiment and so-called core personal-consumption expenditures price index — the Fed’s preferred inflation gauge.

In commodities, Oil was stable after three days of gains as traders weigh surging US production against the ongoing threats of Houthi attacks on ships in one of the world’s most important waterways.

Bitcoin rose, extending Wednesday’s gains as the Securities and Exchange Commission nears a Jan. 10 deadline to reject or approve ETFs. The token rose as high as $44,294 on Wednesday.

Key events this week:

• US GDP, initial jobless claims, Conf. Board leading index, Thursday

• Nike earnings, Thursday

• Japan inflation, Friday

• UK GDP, Friday

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

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 0.3% as of 8:17 a.m. London time

• S&P 500 futures rose 0.5%

• Nasdaq 100 futures rose 0.6%

• Futures on the Dow Jones Industrial Average rose 0.4%

• The MSCI Asia Pacific Index fell 0.4%

• The MSCI Emerging Markets Index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro was little changed at $1.0951

• The Japanese yen rose 0.2% to 143.24 per dollar

• The offshore yuan was little changed at 7.1501 per dollar

• The British pound was little changed at $1.2638

Cryptocurrencies

• Bitcoin rose 0.9% to $43,831.29

• Ether rose 1.7% to $2,215.67

Bonds

• The yield on 10-year Treasuries advanced two basis points to 3.87%

• Germany’s 10-year yield was little changed at 1.96%

• Britain’s 10-year yield declined two basis points to 3.51%

Commodities

• Brent crude rose 0.2% to $79.87 a barrel

• Spot gold rose 0.2% to $2,035.51 an ounce

This story was produced with the assistance of Bloomberg Automation.

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