• Fri. Dec 1st, 2023

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European stocks, U.S. futures slip on rate-hike bets

Stocks in Europe declined amid disappointing results from large clothing retailers and worries over Credit Suisse Group AG. U.S. equity futures edged lower and short-end Treasury yields rose as sticky inflation supported bets for further Federal Reserve rate hikes.

The two-year Treasury yield — the most sensitive to policy moves — climbed six basis points, adding to Tuesday’s 27-point rise, while the 10-year rate dipped four basis points. Contracts on the S&P 500 and Nasdaq 100 fluctuated before turning lower even as a rebound in regional banks continued in premarket trading. A gauge of dollar strength edged higher after four days of declines.

Europe’s Stoxx 600 equity benchmark fell more than one per cent, with a gauge of retailers plunging after Zara owner Inditex SA and H&M Hennes & Mauritz AB both flagged slowing sales. Banks declined as shares in Swiss lender Credit Suisse slumped for an eighth straight session after a top shareholder ruled out more assistance. Oil majors also dragged the index lower after this week’s steep drop in crude prices.

Swaps pricing is back to positioning for the Fed to lift rates by a quarter percentage point next week after the odds of an increase had slipped to nearly 50-50 on Monday. The closely-watched core consumer price index increased 0.5 per cent in February, slightly ahead of the median estimate of 0.4 per cent and enough to keep pressure on policy makers. 

“Our view is inflation has peaked and the Fed will do one more rate hike of 25 basis points and that’s it,” Mark Matthews, Asia research head at Bank Julius Baer & Co., said on Bloomberg TV. 

Traders were also digesting a slew of economic data from China, where retail sales rose as much as estimated while factory output was fractionally lower than projected. The People’s Bank of China added more liquidity than expected while holding a key lending rate unchanged. Rising housing sales provided one clearly positive signal, reflected in a rally in a mainland property index.  

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Financials were among the biggest gainers Wednesday in Tokyo and Hong Kong, where the Hang Seng Index rose more than one per cent. U.S. stocks rallied into the close Tuesday, helping set the scene for the shift in sentiment in Asia. 

Remarks from ratings companies on the financial sector underscored that sentiment is likely to remain fragile after the biggest American bank failures since the financial crisis. 

Moody’s Investors Service cut its outlook on the sector on the heels of the trio of banking collapses over the past few days. First Republic Bank triggered a volatility halt after S&P Global Ratings placed the company on watch negative. 

Elsewhere in markets, oil rose from its lowest close in three months as traders took stock of the outlook for demand. Gold held a drop that took some of the shine off a three-day surge of more than 5 per cent.

Key events this week:

  • Eurozone industrial production, Wednesday
  • U.S. business inventories, retail sales, PPI, empire manufacturing, Wednesday
  • Eurozone rate decision, Thursday
  • U.S. housing starts, initial jobless claims, Thursday
  • Janet Yellen appears before the Senate Finance Committee, Thursday
  • U.S. University of Michigan consumer sentiment, industrial production, Conference Board leading index, Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 fell 1.1 per cent as of 9:23 a.m. London time
  • S&P 500 futures fell 0.4 per cent
  • Nasdaq 100 futures fell 0.3 per cent
  • Futures on the Dow Jones Industrial Average fell 0.4 per cent
  • The MSCI Asia Pacific Index rose 0.7 per cent
  • The MSCI Emerging Markets Index rose 0.7 per cent

Currencies

  • The Bloomberg Dollar Spot Index rose 0.2 per cent
  • The euro fell 0.1 per cent to US$1.0720
  • The Japanese yen fell 0.2 per cent to 134.44 per dollar
  • The offshore yuan fell 0.3 per cent to 6.8988 per dollar
  • The British pound was little changed at US$1.2155

Cryptocurrencies

  • Bitcoin rose 0.9 per cent to US$24,850.96
  • Ether fell 0.1 per cent to US$1,703.36

Bonds

  • The yield on 10-year Treasuries declined three basis points to 3.66 per cent
  • Germany’s 10-year yield advanced three basis points to 2.45 per cent
  • Britain’s 10-year yield advanced three basis points to 3.52 per cent

Commodities

  • Brent crude rose 0.8 per cent to US$78.06 a barrel
  • Spot gold fell 0.8 per cent to US$1,888.61 an ounce


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