(Bloomberg) — European stocks and bonds fell after European Central Bank officials poured cold water on expectations of rapid interest rate cuts even as data from Germany highlighted the difficult backdrop for economic growth and corporate profits.
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The Stoxx Europe 600 index fell 0.6%, extending a lackluster start to the year after a 13% rise in 2023. Consumer goods and retailers led the decline after data showed the German economy contracted for the first time since the pandemic last year. The yield on German 10-year bonds rose by about six basis points to reach the highest level in one month.
Persistent inflation and geopolitical risks will prevent the European Central Bank from cutting interest rates this year, although a recession can no longer be ruled out, according to Governing Council member Robert Holzmann. He joined colleagues, including European Central Bank President Christine Lagarde, Governing Council member Constantinos Herodotou and chief economist Philip Lane, in warning that it was too early to talk about lowering borrowing costs.
Traders are betting on six-quarter-point cuts from the European Central Bank, starting in April, while economists expect the first of four steps to take place in June. Germany on Monday reported a 0.3% contraction in the fourth quarter and a decline in output of the same size for all of 2023. However, Bundesbank President Joachim Nagel agreed that it was too early to discuss monetary easing, suggesting no action before the summer. .
“We have now reached a point where bad economic news no longer translates into good news for equity markets,” said Benoit Belloel, chief investment officer at Natixis Wealth Management. In the United States, too, the market pricing of up to six quarter-point interest rate cuts “may be overstated; Bad economic news will start to hurt, he said.
US stock index futures were flat, with stock and Treasury markets closed on Monday for a public holiday. The dollar scale rose.
Among individual stock moves in Europe, Dassault Aviation SA fell after the French planemaker reported a drop in aircraft orders for 2023. Shares of Delivery Hero SE and Just Eat Takeaway.com NV fell after BNP Paribas Exane analysts recommended moving away from the delivery sector. Food in Europe. Volvo Cars continued a decline that began Friday when it said it was temporarily halting some production due to shipping delays caused by the Red Sea attacks.
The MSCI Asia Pacific Stock Index rose for the third session. Stocks rose in Taiwan after the Democratic Progressive Party won the presidential election, and the more China-friendly Kuomintang party gained too few seats to take control of the assembly.
China’s CSI 300 index swung between gains and losses amid speculation that officials may lower the required reserve ratio after the People’s Bank of China unexpectedly left the interest rate on one-year policy loans at 2.5% on Monday. This was contrary to expectations among economists that it would reduce the so-called medium-term lending facilities by 10 basis points.
“Interest rate cuts are likely still on the table, but China appears to be taking a more measured approach to easing policy,” said Marvin Chen, an analyst at Bloomberg Intelligence in Hong Kong.
Along with more US earnings reports, investors this week will focus on inflation readings in Germany and the UK, as well as a group of political leaders and officials including Chinese Premier Li Qiang attending the annual World Economic Forum. Federal Reserve Governor Christopher Waller’s speech, after officials last week tried to temper any expectations of an imminent interest rate cut, will also be closely watched.
In commodities, oil fell as the risk that air strikes by the United States and its allies against the Houthis would ignite a broader conflict and disrupt crude flows from the Middle East was balanced by weak fundamentals.
Some of the key events in the markets this week:
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The World Economic Forum begins in Davos on Monday under the theme “Rebuilding Confidence.”
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The Iowa Republican Party caucuses, the first nominating contests for the 2024 US presidential elections, begin Monday.
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Japanese Producer Price Index, Tuesday
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German CPI and ZEW survey forecasts on Tuesday
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Unemployment in the UK, Tuesday
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Industrialization of the American Empire, Tuesday
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Goldman Sachs Group Inc. and Morgan Stanley will report earnings on Tuesday
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Federal Reserve Governor Christopher Waller speaks on Tuesday
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China’s GDP, property prices, retail sales and industrial production, Wednesday
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Eurozone consumer price index, Wednesday
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UK Consumer Price Index, Wednesday
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US Retail Sales, Industrial Production, Business Inventories, Wednesday
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The Federal Reserve releases its Beige Book survey on Wednesday
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European Central Bank President Christine Lagarde speaks in Davos on Wednesday
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New York Fed President John Williams speaks on Wednesday
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Unemployment in Australia, Thursday
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Japanese industrial production, Thursday
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The European Central Bank publishes its December policy meeting account on Thursday
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US Housing Start, Initial Jobless Claims, Thursday
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Atlanta Fed President Rafael Bostic speaks Thursday
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Japanese Consumer Price Index, Friday
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US Existing Home Sales, University of Michigan Consumer Confidence, Friday
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The US Congress faces a deadline to pass the spending agreement before part of the federal government closes on Friday
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San Francisco Federal Reserve Bank President Mary Daly speaks Friday
Here are some of the major moves in the markets:
Stores
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S&P 500 futures were down 0.1% as of 9:41 a.m. New York time.
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Dow Jones Industrial Average futures fell 0.1%
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The Stoxx Europe 600 index fell by 0.6%.
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MSCI World Index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%.
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There was little change in the euro at $1.0943
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The British pound fell 0.3 percent to $1.2716
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The Japanese yen fell 0.7 percent to 145.86 yen to the dollar
Digital currencies
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Bitcoin fell 0.3% to $42,388.76
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Ethereum fell 0.2% to $2,519.85
Bonds
Goods
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West Texas Intermediate crude fell 0.8% to $72.08 a barrel
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Spot gold rose 0.2 percent to $2,053.04 an ounce
This story was produced with assistance from Bloomberg Automation.
– With assistance from Michael Msika, Tassia Sibahutar, and Julian Ponthus.
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