Stocks and US futures fall as dollar extends gains: markets close

(Bloomberg) — European stocks and U.S. futures fell while the dollar rose to a one-month high as the market digested recent comments from central bank officials who rejected bets on aggressive interest rate cuts.

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The Stoxx Europe 600 index headed for a five-week low, with banks leading the decline after analysts at JPMorgan Chase & Co. predicted profit downgrades due to lower interest rates. Futures on the S&P 500 fell 0.5%, while contracts on the more interest-sensitive Nasdaq 100 fell by 0.9%. Treasury bonds fell on the first day of trading since Friday, with 10-year and policy-sensitive 2-year yields each rising about six basis points.

It is still too early to declare victory over inflation, said François Villeroy de Galhau, member of the ECB Governing Council, in Davos, Switzerland, where he is taking part in the World Economic Forum. Traders are waiting for Federal Reserve Governor Christopher Waller's speech later on Tuesday for clues on the timing of a Fed rate cut, with money markets seeing a two-in-three chance of a rate cut in March.

“Central banks pushing back interest rate cuts is not helping risky assets,” said Mohit Kumar, chief Europe economist at Jefferies International. “The debate in financial markets focuses on the timing of interest rate cuts. As we discussed in recent notes, the market is somewhat ahead in pricing in rate cuts.”

Stocks erased losses after the ECB's monthly survey showed consumer expectations for euro zone inflation fell to their lowest level in more than 1 1/2 years in November. Money markets kept interest rate cut bets largely stable after the ECB data, pricing in the first quarter-point cut by April, followed by almost five more by the end of the year.

The story goes on

ECB Governing Council member Robert Holzmann noted on Monday that cuts this year are not assured given ongoing inflation and geopolitical risks. His views echoed earlier comments from ECB President Christine Lagarde, who warned that it was too early to talk about cutting borrowing costs. A number of ECB speakers are on the WEF list for Wednesday.

Meanwhile, economic data in the UK supported the case for interest rate cuts from the Bank of England in the coming months, with wage growth cooling at one of the fastest pace on record. The pound weakened by up to 0.5% against the dollar and British government bond yields fell slightly.

READ: A pessimist's guide to global economic risks in 2024

Morgan Stanley and Goldman Sachs Group Inc. are among companies due to report results on Tuesday, expected to reveal the ongoing slowdown in investment banking as high borrowing costs, geopolitical tensions and recession risks dampen dealmaking.

Elsewhere, oil prices held steady as ongoing Houthi attacks on ships in the Red Sea, causing high tensions in the Middle East, were offset by an uncertain global economic outlook and dollar gains. Global benchmark Brent crude remained above $78 a barrel, while West Texas Intermediate traded below $73.

The MSCI Asia Pacific index slipped 1.3%, halting a three-day rally, while the Hang Seng index headed for its worst day in about two months as financing plans for the property sector hurt bank stocks.

Some key events in the markets this week:

• US Empire Manufacturing, Tuesday

• Goldman Sachs Group Inc. and Morgan Stanley report earnings on Tuesday

• Federal Reserve Governor Christopher Waller speaks Tuesday

• China's GDP, property prices, retail sales and industrial production, Wednesday

• Eurozone CPI, Wednesday

• UK CPI, Wednesday

• US retail sales, industrial production, corporate inventories, Wednesday

• The Federal Reserve releases a Beige Book survey on Wednesday

• The President of the European Central Bank, Christine Lagarde, speaks in Davos on Wednesday

• New York Fed President John Williams speaks on Wednesday

• Unemployment in Australia, Thursday

• Japanese industrial production, Thursday

• The European Central Bank will publish a report on its December monetary policy meeting on Thursday

• Construction begins in the USA, initial jobless claims, Thursday

• Atlanta Fed President Raphael Bostic speaks Thursday

• Japan CPI, Friday

• U.S. Existing Home Sales, University of Michigan Consumer Sentiment, Friday

• The U.S. Congress faces a Friday deadline to pass a spending deal before part of the federal government is shut down

• San Francisco Fed President Mary Daly speaks Friday

Here are some of the key moves in the markets:

Shares

• The Stoxx Europe 600 fell 0.5% at 9:48 a.m. London time

• S&P 500 futures fell 0.5%

• Nasdaq 100 futures fell 0.7%

• Futures on the Dow Jones Industrial Average fell 0.4%

• The MSCI Asia Pacific Index fell 1.5%

• The MSCI Emerging Markets Index fell 1.3%

Currencies

• The Bloomberg Dollar Spot Index rose 0.6%

• The euro fell 0.6% to $1.0886

• The Japanese yen fell 0.6% to 146.59 per dollar

• The offshore yuan fell 0.4% to 7.2134 per dollar

• The British pound fell 0.7% to $1.2638

Cryptocurrencies

• Bitcoin rose 0.6% to $42,927.51

• Ether rose 0.7% to $2,537.66

Tie up

• The 10-year Treasury yield rose six basis points to 4.00%

• The yield on 10-year German government bonds remained little changed at 2.23%

• The 10-year UK government bond yield fell two basis points to 3.78%

raw materials

• Brent crude rose 0.6% to $78.58 a barrel

• Spot gold fell 0.8% to $2,039.32 an ounce

This story was produced with support from Bloomberg Automation.

– With assistance from Divya Patil and Lynn Thomasson.

(An earlier version corrected the headline in the first paragraph to say the dollar is headed for a one-month high.)

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