(Bloomberg) – European stocks traded little changed and US stock index futures fell as concerns that the Federal Reserve will keep borrowing costs high for longer outweighed optimism about China’s economic recovery.
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The Stoxx Europe 600 Index traded marginally higher after rising as much as 0.3% and falling as much as 0.2%. The Shanghai Composite Index has risen the most since November. Treasury futures were lower as investors assessed hawkish comments from Federal Reserve officials. The dollar took a breather from a three-week rally. Trading volumes were light amid a US holiday making directional changes more frequent.
A chorus of investors including Goldman Sachs Group Inc. are betting Chinese stocks will continue a rally as the world’s second largest economy deepens stimulus and eases pandemic restrictions. While this has prompted inflows into global assets tied to the Chinese economy, overall market sentiment remains depressed as the Fed fights inflation with determination. Rising geopolitical tensions are also preventing investors from becoming more optimistic.
“2023 will be a lot bumpier than current developments suggest,” Luca Fina, head of equities at Generali Insurance Asset Management, wrote in a note. “It would make sense to reduce portfolio cyclicality – add some cheap year-to-date losers that should do better in a scenario of higher volatility and uncertainty (and) reduce those that are currently more expensive and price in a Goldilocks scenario. ”
The European Stoxx 600 was little changed, with consumer and technology stocks detracting even as commodity stocks rallied. In China, stocks rose after a Goldman report that indicated a rebound on earnings recovery. Calls for further stimulus from lower interest rates also grew louder, prompting the country’s banks to leave their lending rates unchanged.
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Contracts on the S&P 500 and Nasdaq 100 indices slipped and Treasury futures fell over the curve. Stocks ended last week subdued after Richmond Fed President Thomas Barkin and Fed Governor Michelle Bowman both announced their support for further rate hikes. That was followed by hawkish comments from St. Louis Fed President James Bullard and Cleveland President Loretta.
With US traders away for the holiday, it was unclear how markets were assessing the spate of geopolitical developments over the past few days. First, the weekend underscored rising tensions between the world’s two superpowers: US Secretary of State Antony Blinken and China’s State Councilor Wang Yi traded barbs on everything from Taiwan to North Korea and Russia in their first meeting since a spy balloon controversy. North Korea then fired a barrage of suspected ballistic missiles and warned the US against joint military exercises.
On Monday, US President Joe Biden paid a surprise visit to Kiev and met with his Ukrainian counterpart Volodymyr Zelenskyy, declaring “unwavering support” in a show of solidarity as the Russian invasion nears the one-year mark.
Oil futures rose on Monday. Demand from China will increase by 800,000 barrels per day in 2023, according to the median estimate of 11 China-focused advisors polled by Bloomberg News. That would push consumption to an all-time high of about 16 million barrels a day, the survey found.
“The only place where the central bank will remain soft enough is in China to recover from a series of absurd Covid measures that have pushed the economy into an unnecessary depression zone,” wrote Ipek Ozkardeskaya, a senior analyst at Swissquote bank, in a note.
Investors were also awaiting clues on US consumer demand as Walmart Inc. and Home Depot Inc. were expected to release a series of retail earnings reports this week.
Important events this week:
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Scheduled earnings for the week are: Alibaba, Anglo American, AXA, BAE Systems, Baidu, BASF, BHP, Danone, Deutsche Telekom, Holcim, Home Depot, Hong Kong Exchanges & Clearing, HSBC, Iberdrola, Lloyds Banking Group, Moderna, Munich Re, Newmont, Nvidia, Rio Tinto, Walmart, Warner Bros Discovery
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US financial markets are closed on Monday for the Presidents’ Day holiday
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PMIs for Japan, Eurozone, UK, US, Tuesday
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US Existing Home Sales, Tuesday
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US MBA Mortgage Applications, Wednesday
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The Federal Reserve Minutes from January 31st to February 31st. 1 policy meeting, Wednesday
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Eurozone CPI, Thursday
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US GDP, Initial Jobless Claims, Thursday
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Atlanta Fed President Raphael Bostic speaks Thursday
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The finance ministers and central bank governors of the G-20 meet in India from Thursday to Friday
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Japan CPI, Friday
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BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house on Friday
Some of the key movements in the markets:
Shares
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The Stoxx Europe 600 was little changed at 3:26pm London time
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S&P 500 futures fell 0.3%
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Nasdaq 100 futures down 0.1%
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Futures on the Dow Jones Industrial Average fell 0.3%
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MSCI Asia Pacific Index up 0.6%
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MSCI Emerging Markets Index up 0.6%
currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0688
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The Japanese yen rose 0.1% to 134.00 per dollar
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The offshore yuan rose 0.2% to 6.8567 per dollar
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The British pound was little changed at $1.2039
cryptocurrencies
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Bitcoin rose 1.6% to $24,946.06
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Ether was up 1.3% to $1,708.38
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This story was created with the support of Bloomberg Automation.
–With support from Cecile Gutscher, Tassia Sipahutar and Akshay Chinchalkar.
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