Finance

European stock futures steady, yen recovers: markets rally

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3 days ago

July 4, 2024

European stock futures steady, yen recovers: markets rally

(Bloomberg) — European shares were poised for a steady start after Asian shares rallied as economic data supported the case for Federal Reserve rate cuts. The yen bounced from its lowest level against the dollar since 1986.

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Euro Stoxx 50 futures were flat, following a similar move in U.S. stock contracts after the S&P 500 and Nadaq 100 index climbed to record highs in a shortened session on Wednesday. The pound held steady ahead of the UK general election, where the Labor Party was expected to win by a landslide.

The MSCI Asia-Pacific index hit its highest in more than two years, with technology stocks contributing most to the rally. Japan’s Topix climbed to a record intraday high and stocks in South Korea, Taiwan and Australia also advanced.

The yen strengthened after returning to its lowest level since 1986 against the dollar last session. Speculation continues that the Bank of Japan will tighten policy only gradually. A gauge for the dollar weakened for the third straight session.

“Weaker government bond yields and a dip in the US dollar due to accommodative interest rates could support risk sentiment across the region,” said Jun Rong Yeap, market strategist at IG Asia Pte. The “slowing US growth outlook” makes a September rate cut “more likely than not,” he said.

Global stocks are on track for their longest stretch of weekly gains since March, driven by a series of soft economic data in the US that has revived the possibility of interest rate cuts in September. On Wednesday, reports showed that the US services sector was shrinking at the fastest pace in four years, and the labor market saw further signs of weakening.

Ten-year Treasury yields fell seven basis points to 4.36% in the previous session, weighing on the strong dollar index. Most Asian currencies rose against the dollar, led by the Thai baht and the Korean won.

Minutes from the Fed’s June policy meeting showed that officials were waiting for evidence that inflation was cooling and were divided on how long to keep rates high. Swap traders nearly predicted two rate cuts in 2024, with the first in November, although bets on a cut in September increased.

“Bad news is good news,” says Fawad Razaqzada of City Index and Forex.com. “Here’s how risky assets reacted in the aftermath” of Wednesday’s U.S. data.

Elsewhere in Asia, Chinese shares lagged peers in the rest of the region as economic recovery concerns faltered ahead of the Communist Party’s crucial Third Plenum later this month. Chinese stocks in Hong Kong enjoyed a three-day rally.

Chinese electric car brands maintained their share of the collapsing European EV market in May. Automakers such as BYD Co. represented 8.7% of total EV sales, roughly on par with a year ago, as Chinese companies pressure European counterparts with new, low-cost models.

Traders are watching for indications as to whether President Joe Biden will withdraw from the US presidential race. Wall Street has begun shifting money to and from the dollar, government bonds and other assets that would be hit if his rival Donald Trump returns to office.

“The British and French elections will be more of a temporary concern for the markets,” Adrian Zuercher, chief investment officer at UBS AG Private Banking, told Bloomberg Radio. But “Trump is a different story, especially on the trade war situation. We’ll have to see how aggressive he will be on rates and that may resonate a little longer” with the markets, he said.

Investors will now be keeping a close eye on Friday’s US jobs report. Economists expect an increase of 190,000 nonfarm payrolls jobs in June – fewer than the month before – while the unemployment rate remains at 4%.

“Given other evidence of a cooling economic backdrop, the wages report could be increasingly decisive for the Fed as it looks for a reason to signal a rate cut,” said Quincy Krosby of LPL Financial.

Chicago Fed President Austan Goolsbee said there is still a lot of data the U.S. central bank needs to see before it has the confidence to cut rates.

In the commodities sector, gold held steady after breaking out of days’ tight trading range on Wednesday. Iron ore futures climbed to their highest level in almost a month on optimism about improving demand from China.

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