Global stocks hit four-week lows on Monday, weighed down by a slide in Asian shares, while European stocks rose on the prospect of an ECB interest rate cut on Thursday, government bond yields rose and oil rebounded from a hit by last week.
MSCI’s broadest index of shares around the world fell 1.94 points, or 0.24 percent, to its lowest level in nearly a month, while Europe’s STOXX 600 index rose 0.61 percent.
Data on Monday showed China’s consumer price index rose in August at the fastest pace in six months as food prices rose due to weather disruptions, but fell short of market expectations. Producer price deflation worsened, reflecting the underlying trend of a struggling economy.
That sent China’s blue-chip index down 1.2 percent, its lowest level since early February. The Shanghai Composite closed down 1.1%. while Hong Kong’s Hang Seng lost 1.4%.
Japan’s Nikkei fell about 0.5 percent, as tech stocks fell. (T)
“We’re still looking back to Friday with people in Asia positioning for 25 basis points cuts, not 50 basis points. We’ll see if equity markets get nervous, but for now everything looks on track,” said Kit Juckes, foreign exchange strategist at Societe Generale (OTC:SCGLY).
European bourses opened higher and continued to rise with all regional bourses up more than 0.5%.
At the center of this week will be the European Central Bank’s decision on interest rates on Thursday. The ECB, which interest rate cut by 25 basis points (bps) in June, is widely expected to ease policy by the same amount.
S&P 500 futures rallied 0.6 percent and Nasdaq futures rose about 0.8 percent, after Friday’s slide.
Fed futures fell as investors wondered whether a mixed August US payrolls report would be enough to prompt the Federal Reserve to interest rate cut by 50 basis points when it meets next week.
So far, markets are suggesting a 30% chance of a big cut, in part due to comments from Fed Governor Christopher Waller and New York Fed President John Williams on Friday, although Waller left open the possibility of aggressive easing.
“Our reading of the data is that the labor market continues to cool, but we see no signs of the kind of rapid deterioration in conditions that would require a 50 basis point rate cut,” said Barclays economist Christian Keller.
“Importantly, too, we don’t see any sign of appetite for that in Fed announcements,” he added.
Investors are more cautious and estimate a 113bps easing. by the end of the year and another 132 m.v. for 2025.
August US consumer price data on Wednesday should underline the case for a reduction, if not the size, with headline inflation seen slowing to 2.6% from 2.9%.
On Tuesday, the debate between Democrat Kamala Harris and Republican Donald Trump will be held for the first time ahead of the November 5 presidential election.
YIELDS ARE SLOW TO RELAX
Eurozone and U.S. government bond yields rose after Friday’s drop in U.S. jobs data.
There was a modest underperformance in French bonds after French newspaper La Tribune de Dimanche reported on Sunday that the French finance ministry had asked to extend the deadline for submitting the 2025 budget to the EU beyond September 20.
U.S. 10-year Treasury yields rose 5 basis points to 3.76%, moving away from last week’s 15-month low. Two-year bond yields also rose about 5 bps, having hit March 2023 lows last week.
The yen also gave up some of its gains, as the dollar settled 0.8% at 143.30 yen. The euro fell 0.3% to $1.1049, having briefly touched as high as $1.1155 on Friday. [USD/]
Oil prices found some support as a potential hurricane system neared the US Gulf Coast, having fallen nearly 10% last week in their biggest weekly drop in 11 months, amid persistent concerns about global demand. [O/R]
Brent rose 63 cents to $71.70 a barrel, while U.S. crude rose 66 cents to $68.33 a barrel.
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Written by D Fernando
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