(Bloomberg) — European stocks fell after policymakers said they needed more evidence that price pressures are easing before considering another interest rate cut.
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The Stoxx Europe 600 index fell about 0.5%, led by insurers and carmakers. France’s CAC 40 erased most of Monday’s gains as the country prepares for a runoff election, with the outlook for French assets still uncertain. U.S. stock futures declined.
Inflation likely slowed further in June, but the data won’t answer the European Central Bank’s lingering questions about underlying price pressures, according to chief economist Philip Lane. He joined President Christine Lagarde and Vice President Luis de Guindos in warning that another rate cut in July is unlikely as the ECB gathers evidence that inflation is heading toward its 2% target.
“We expect inflation to have come down slightly,” said Frederique Carrier, head of investment strategy at RBC Wealth Management. Still, Christine Lagarde “has been very good at getting the message across, so we don’t expect a change in July, but rather in September and December,” she added.
European stocks have been held back by political turmoil in recent weeks following the call for early elections in France. The first round of parliamentary elections narrowed the possible outcomes to two, suggesting prolonged uncertainty for investors. The second round of voting is scheduled for Sunday.
“We expect France to be more difficult to govern, that there will be fewer reforms, this is not positive,” said Mr. Carrier.
Meanwhile, the yield on 10-year Treasury notes slowed some of its rise on Monday, amid speculation that a Donald Trump presidency would lead to larger U.S. budget deficits and higher inflation. The dollar index rose for a second straight day.
“The dollar is being supported by rising US Treasury yields overnight,” said David Forrester, senior strategist at Crédit Agricole CIB. “The irony is that it is investor concerns about US fiscal sustainability that are pushing US Treasury yields higher.”
Treasury bonds have been buffeted this year, with traders swinging between buying bonds amid signs of slowing U.S. prices and fears of higher rates over the long term. Yields on five-year bonds have climbed more than 20 basis points from a low of about 4.20% just under three weeks ago.
After last week’s debate dented Joe Biden’s reelection chances, Wall Street strategists including those at Goldman Sachs Group Inc., Morgan Stanley and Barclays Plc. are taking a fresh look at the potential implications of a Trump victory for the bond market. They are urging clients to position for stable inflation and higher long-term yields.
Strategists at JPMorgan Chase & Co., meanwhile, say now is the time to take profits on Treasuries.
Federal Reserve Chairman Jerome Powell’s speech at an ECB forum in Portugal could provide further clues about the outlook for monetary policy. The ECB’s Christine Lagarde is also expected to speak. Traders will also be watching U.S. job openings data later Tuesday.
Among individual stocks, shares of restaurant company Sodexo SA fell after reporting third-quarter revenue that missed expectations. Michelin shares also declined in Paris, with analysts citing a conference call before the close of trading Monday. HelloFresh SE shares jumped after JPMorgan said data pointed to stabilization in the key meal-kit business in North America.
Asian stocks advance
Asian stocks advanced, led by gains in Japan and Hong Kong. The MSCI AC Asia Pacific Index hit its highest level since late May, amid a rebound in Hong Kong-listed homebuilder and electric vehicle shares.
Japan’s stock index edged closer to a record high, buoyed by gains in financial stocks on prospects for higher interest rates. Yields on Japanese 10-year bonds continued to climb above 1 percent on bets the central bank will raise interest rates.
In China, pessimism about the domestic economy has triggered strong demand for government securities. The central bank said it would borrow government bonds from securities dealers, a sign it may be considering selling securities to curb the rise.
Yields on Chinese benchmark bonds fell to a record low on Monday as investors worried about long-term economic growth.
In commodities trading, oil hit a two-month high on escalating tensions in the Middle East and concerns about the early start to the Atlantic hurricane season. Iron ore held at its highest level in about a month. Gold was little changed.
Main events of the week:
Eurozone: CPI, unemployment, Tuesday
Job openings in the United States, Tuesday
Jerome Powell and Christine Lagarde speak at an ECB forum in Portugal on Tuesday
Caixin China Services PMI, Wednesday
S&P Global PMI and Eurozone Services PPI, Wednesday
US Fed Minutes, ADP Employment, ISM Services, Factory Orders, Initial Jobless Claims, Durable Goods, Wednesday
Fed Chairman John Williams Speaks Wednesday
UK General Election, Thursday
United States Independence Day holiday, Thursday
Eurozone retail sales, Friday
US jobs report, Friday
Fed Chairman John Williams Speaks Friday
Some of the main movements in the markets:
Actions
The Stoxx Europe 600 fell 0.5% at 9:13 a.m. London time.
French CAC 40 falls by 0.6%
S&P 500 futures fell 0.3%
Nasdaq 100 futures fell 0.4%
Dow Jones Industrial Average futures fell 0.3%
The MSCI Asia Pacific index was little changed
The MSCI emerging markets index fell 0.6%
Currencies
The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.2% to $1.0723
The Japanese yen fell 0.1 percent to 161.66 per dollar.
The offshore yuan was little changed at 7.3063 per dollar.
The pound fell 0.2% to $1.2629
Cryptocurrencies
Bitcoin fell 1.4% to $62,376.28
Ether fell 1% to $3,429.48
Obligations
The yield on 10-year Treasury notes fell two basis points to 4.45%
Germany’s 10-year yield fell two basis points to 2.59%
The UK 10-year yield fell three basis points to 4.26%
Raw materials
This story was produced with assistance from Bloomberg Automation.
–With assistance from Jason Scott, Sagarika Jaisinghani, and Aya Wagatsuma.
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