(Bloomberg) — European stocks and bonds slumped after European Central Bank officials poured cold water on hopes for rapid interest rate cuts, even as German data highlighted a challenging backdrop for economic growth and corporate profits. It fell.
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The Stoxx Europe 600 index fell 0.5%, continuing a lackluster start to the year after rising 13% in 2023. Consumer goods and retail led the decline after data showed Germany’s economy contracted for the first time since the pandemic last year. Germany’s 10-year bond yield rose about 6 basis points to its highest level in a month.
Governing Council member Robert Holzmann said that while a recession could no longer be ruled out, lingering inflation and geopolitical risks would prevent the ECB from cutting interest rates this year. He spoke at the World Economic Forum in Davos after his colleagues, including ECB President Christine Lagarde and chief economist Philippe Lane, also warned that it was too early to talk about cutting borrowing costs.
Traders are betting on six quarter-point rate cuts starting in April, while economists expect the first of four to occur in June. Germany reported on Monday that its economy is expected to grow by 0.3% in the fourth quarter, with output expected to fall by the same size for all of 2023. Still, Deutsche Bundesbank President Joachim Nagel agreed that it was too early to talk about monetary easing and suggested no move would be made before the summer. .
“We’re at a point where bad news for the economy is no longer good news for the stock market,” said Benoît Perroilles, chief investment officer at Natixis Wealth Management. Similarly in the U.S., he said, “it may be a stretch for markets to price in up to six quarters of rate cuts. Bad economic news will start to hurt.”
U.S. stock market index futures were flat on Monday as the stock market and spot government bond market were closed due to a public holiday. Dollar indicators rose slightly.
In individual European stocks, prices fell after French aircraft maker Dassault Aviation SA reported a decline in jet aircraft orders for 2023. Delivery Hero SE and Just Eat Takeaway.com NV fell after analysts at BNP Paribas Exanne recommended an exit from the European food delivery sector. Volvo Car AB widened the decline on Friday when it announced it would suspend some production due to shipping delays caused by the Red Sea attack.
The MSCI Asia-Pacific Stock Index rose for the third consecutive session. In Taiwan, stock prices rose after the Democratic Progressive Party won the presidential election and the pro-China Nationalist Party won too few seats to control the parliament.
The People’s Bank of China unexpectedly kept its one-year policy lending rate unchanged at 2.5% on Monday, fueling speculation that officials would lower required reserve requirements and China’s CSI300 index. It fluctuated between rising and falling. This was contrary to expectations among economists that the so-called medium-term lending facility would be cut by 10 basis points.
“While rate cuts are likely still on the table, China appears to be taking a more cautious approach to policy easing,” said Marvin Chen, an analyst at Bloomberg Intelligence in Hong Kong.
Investors this week will focus on further US earnings reports, as well as inflation trends in Germany and the UK, and the number of political leaders and government officials, including Chinese Premier Li Qiang, attending the annual WEF. Federal Reserve President Christopher Waller’s speech after last week’s attempt to dampen expectations of an impending rate cut will also be closely watched.
In commodities, oil fell as soft fundamentals balanced out the risk that airstrikes by the US and its allies against the Houthis could spark a broader conflict and disrupt the flow of oil from the Middle East.
Here are the main events on the market this week:
The World Economic Forum opens in Davos on Monday with this year’s theme: “Rebuilding Trust.”
The Iowa Republican caucuses, the first nominating contest in the 2024 US presidential election, Monday.
Japan PPI, Tuesday
German CPI, ZEW survey forecast, Tuesday
UK unemployment rate, Tuesday
US Empire Manufacturing, Tuesday
Goldman Sachs Group and Morgan Stanley will report earnings on Tuesday.
Federal Reserve President Christopher Waller speaks on Tuesday
China’s GDP, real estate prices, retail sales, industrial production, Wednesday
Eurozone CPI, Wednesday
UK CPI, Wednesday
US retail sales, industrial production, business inventories, Wednesday
Fed releases Beige Book survey on Wednesday
European Central Bank President Christine Lagarde speaks at Davos on Wednesday
New York Fed President John Williams speaks on Wednesday
Australian unemployment rate Thursday
Japan’s industrial production Thursday
European Central Bank releases report of December policy meeting on Thursday
U.S. housing starts, new unemployment insurance claims, Thursday
Atlanta Fed President Rafael Bostic speaks Thursday
Japan CPI, Friday
U.S. existing home sales, University of Michigan consumer sentiment, Friday
Congress faces deadline Friday to pass spending deal before partial federal government shutdown
San Francisco Fed President Mary Daley speaks on Friday
The main movements in the market are:
stock
As of 8:05 a.m. New York time, S&P 500 futures were down 0.1%.
Nasdaq 100 futures little changed
Dow Jones Industrial Average futures fell 0.1%.
Stoxx European 600 falls 0.5%
MSCI World Index falls 0.1%
currency
Bloomberg Dollar Spot Index rose 0.2%
The euro was almost unchanged at $1.0949.
The British pound fell 0.3% to $1.2720.
The Japanese yen fell 0.7% to 145.87 yen to the dollar.
cryptocurrency
Bitcoin rose 0.3% to $42,662.08
Ether rose 0.6% to $2,539.79
bond
merchandise
West Texas Intermediate crude oil fell 1.8% to $71.34 a barrel.
Spot gold rose 0.2% to $2,052.74 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Michael Msika, Tassia Sipahutar and Julien Ponthus.
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