European Stocks Gain as US Inflation Report Looms: Markets Wrap

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(Bloomberg) — European stocks edged up after the S&P 500 closed at a new record high Friday amid optimism over eventual Federal Reserve interest-rate cuts and as investors look forward to a crucial update on US inflation.

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Rates-sensitive real estate stocks led gains in Europe, while oil companies were laggards amid weakness in crude prices. US equity futures kept to narrow ranges after the S&P 500 closed above 5,000 for the first time on Friday, driven by a renewed rally in big tech companies. Treasury yields ticked lower, while the dollar was steady after wrapping up a sixth week of gains, the longest winning streak since early September.

Tuesday’s inflation report is the key event of the week for markets as traders look for clues on the timing of a first Fed rate cut. On Friday, Fed Bank of Atlanta President Raphael Bostic said he’s “laser focused” on returning inflation to target, and his Dallas counterpart Lorie Logan said she sees no urgency for easing. There’s more Fedspeak to look forward to later Monday, with remarks due from three officials at the central bank.

“The January CPI numbers are expected to be softening compared to December, but with Fed officials sticking to a cautious script lately, it is hard to think this week’s CPI will change the recent messaging,” said Paul Mackel, the head of global FX research at HSBC Bank Plc. “One would think that many within the Fed would be in favor of a strong dollar to help the disinflation process.”

The annual US inflation rate is forecast to have dropped to 2.9% in January from 3.4% the prior month, according to consensus estimates of economists surveyed by Bloomberg. That would be the first reading below 3% since March 2021.

Swaps market pricing shows investors anticipate the chance of a Fed cut in March at 15%, down from 65% a month ago. Traders now foresee four 25-basis-point rate cuts in 2024, down from seven forecast at the end of last year.

For UBS Global Wealth Management Chief Investment Officer Mark Haefele, the backdrop for global bonds is brightening, even if the market doesn’t get the number of Fed rate cuts it is betting on.

“It’s important not to lose sight of the big picture, which is that continued disinflation should allow the central bank to start easing this year,” Haefele wrote in a note. “This is a significant change in the investment landscape, so we think it’s less important whether the Fed cuts three, four, or five times this year. Any of these scenarios should be a positive macro outcome for bonds, and we see the 10-year Treasury yield falling to 3.5% by the end of this year.”

In Asia Monday, trading levels were muted with a swath of markets shut for Lunar New Year holidays. Equities in Australia, New Zealand, India and the Philippines drifted lower amid a lack of leads in the region. Markets including Japan, China, Hong Kong, Singapore, Taiwan and South Korea were all closed.

The yen held near a two-month low reached on Friday following comments from central bankers that the Bank of Japan will take its time raising rates. Japan’s currency has weakened against all its Group-of-10 peers this year.

In commodities, oil prices fell following last week’s advance Iran’s foreign minister said the war in Gaza may be moving closer to a diplomatic solution.

Key events this week:

  • India CPI, Monday

  • Minneapolis Fed President Neel Kashkari, Fed Governor Michelle Bowman, Fed President Tom Barkin speak, Monday

  • ECB executive board member Piero Cipollone, chief economist Philip Lane speak, Monday

  • US CPI, Tuesday

  • UK unemployment, Tuesday

  • Japan producer prices, Tuesday

  • UK inflation, Wednesday

  • Eurozone GDP, industrial production, Wednesday

  • Indonesia presidential election, Wednesday

  • Bank of England Governor Andrew Bailey speaks, Wednesday

  • ECB governing council member Boris Vujcic and vice president Luis de Guindos speak

  • Chicago Fed President Austan Goolsbee speaks, Wednesday

  • Australia jobs, Thursday

  • Japan GDP, Thursday

  • UK GDP, Thursday

  • US initial jobless claims, retail sales, Thursday

  • Philippine central bank meeting on interest rates, Thursday

  • ECB President Christine Lagarde speaks, Thursday

  • Fed Governor Christopher Waller speaks, Thursday

  • Bank of England policy makers Catherine Mann, Megan Green speak, Thursday

  • US housing starts, producer prices, Friday

  • San Francisco Fed President Mary Daly, Fed Vice Chair for Supervision Michael Barr speak, Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 rose 0.3% as of 8:06 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 was little changed

  • The MSCI Emerging Markets Index was little changed

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro rose 0.1% to $1.0796

  • The Japanese yen rose 0.2% to 149.05 per dollar

  • The offshore yuan was little changed at 7.2196 per dollar

  • The British pound rose 0.1% to $1.2643

Cryptocurrencies

  • Bitcoin rose 0.2% to $48,232.01

  • Ether fell 0.2% to $2,500.64

Bonds

  • The yield on 10-year Treasuries declined two basis points to 4.15%

  • Germany’s 10-year yield declined three basis points to 2.35%

  • Britain’s 10-year yield declined four basis points to 4.05%

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Robert Brand and Sagarika Jaisinghani.

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