European Stocks Recover Faster Than US Inflation, Fed: Markets Wrap

(Bloomberg) — European stocks rallied after days of political turmoil in France, with traders positioning for the potential disruption of U.S. inflation data that came just hours ahead of the Federal Reserve’s interest rate decision.

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Banks led the Stoxx 600 with a 0.5% lead, ending three sessions of losses. The euro remained stable. Government bonds were little changed after rising following solid $39 billion selling, while French 10-year bonds suffered four days of losses.

The dollar held firm after four days of gains, while US stock futures moved higher after the S&P 500 closed at a new record high.

Volatility in European assets appears to be easing after investors were caught unprepared for France’s far-right gains in last weekend’s European Parliament elections. However, the calm may be short-lived as a double whammy of US CPI data and Fed rate forecasts could potentially rock markets.

“Today is a big day in terms of economic data and Fed announcements,” said Ipek Ozkardeskaya, analyst at Swissquote Bank. “It could set the mood in the global market for the rest of the month and much of the summer.”

The Fed is widely expected to keep borrowing costs at a 20-year high on Wednesday, but there is less certainty about officials’ quarterly interest rate projections, known as the “dot plot.”

The projections “could potentially be a major market-moving event, especially if the dots show just one rate cut in 2024 instead of two, which seems to be the consensus,” said Nomura strategist Chetan Seth.

According to Bloomberg Economics, the new dot plot is likely to indicate two cuts of 25 basis points this year, compared to three in the March version. Economists expect May’s CPI print to give the Fed some additional reassurance that inflation is slowing.

In Asia, Hong Kong’s stock benchmark fell more than 1%.

Chinese consumer price increases remained above zero in May, while factory prices remained mired in deflation, fueling concerns about continued weak demand. In addition, the Biden administration is said to be considering further restrictions on China’s access to chip technology used for artificial intelligence.

Main events this week:

• US CPI, Fed rate decision, Wednesday

• G-7 Leaders Summit, June 13-15

• Industrial production in the eurozone, Thursday

• US PPI, first unemployment claims, Thursday

• Tesla annual meeting, Thursday

• New York Fed President John Williams moderates a conversation with Treasury Secretary Janet Yellen on Thursday

• The Bank of Japan’s monetary policy decision, Friday

• Chicago Fed President Austan Goolsbee will speak on Friday

• Consumer Confidence at the American University of Michigan, Friday

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Some of the major moves in the markets:

Shares

• The Stoxx Europe 600 rose 0.5% as of 8:31 a.m. London time

• Futures on the S&P 500 were little changed

• Nasdaq 100 futures were little changed

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific Index fell 0.1%

• The MSCI Emerging Markets Index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0742

• The Japanese yen fell 0.1% to 157.32 per dollar

• The offshore yuan was little changed at 7.2696 per dollar

• The British pound was little changed at $1.2741

Cryptocurrencies

• Bitcoin rose 0.1% to $67,367.45

• Ether rose 1% to $3,520.96

Bonds

• The yield on 10-year government bonds was little changed at 4.40%

• The German ten-year yield fell by two basis points to 2.60%

• The British ten-year yield fell by two basis points to 4.24%

Raw materials

• Brent crude rose 0.5% to $82.37 per barrel

• Gold fell 0.2% to $2,312.77 an ounce

This story was produced with the help of Bloomberg Automation.

—With help from Winnie Hsu and Aya Wagatsuma.

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