European stocks rise as US inflation report approaches: Markets wrap

(Bloomberg) — European stocks rose after the S&P 500 closed at a new record high on Friday amid optimism about the Federal Reserve's eventual interest rate cuts and as investors looked forward to an important update on U.S. inflation.

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Interest rate-sensitive real estate stocks led gains in Europe, while oil companies lagged amid weak crude oil prices. US stock futures remained in tight ranges after the S&P 500 closed above the 5,000 mark for the first time on Friday, driven by a renewed rally in big technology companies. Treasury yields fell, while the dollar stabilized after ending its sixth week of gains, the longest winning streak since early September.

Tuesday's inflation report is the main event of the week for markets as traders look for clues about the timing of the Federal Reserve's first interest rate cut. On Friday, Atlanta Fed President Rafael Bostic said he was “very focused” on getting inflation back on target, and his Dallas counterpart Lori Logan said she saw no urgency to ease. There is more Fed talk to look forward to later on Monday, with comments from three central bank officials.

“January CPI numbers are expected to decline compared to December, but with Fed officials sticking to a dovish scenario recently, it's hard to believe this week's CPI will change the recent messaging,” said Paul McKell, head of global currency research. At HSBC Bank Plc. “One would think that many within the Fed would support a strong dollar to help bring down inflation.”

Annual U.S. inflation is expected to fall to 2.9% in January from 3.4% the previous month, according to estimates from economists polled by Bloomberg. This will be the first reading below 3% since March 2021.

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Swaps market pricing shows that investors expect the chance of a Fed cut in March at 15%, down from 65% a month ago. Traders now expect four 25 basis point interest rate cuts in 2024, down from seven forecast at the end of last year.

For Mark Highfill, chief investment officer at UBS Global Wealth Management, the backdrop for global bonds is bright, even if the market doesn't get the number of Fed rate cuts it's betting on.

“It is important not to lose sight of the big picture, which is that continued low inflation should allow the central bank to start easing this year,” Hefele wrote in a note. “This is a big change in the investment landscape, so we think it is less important whether the Fed cuts rates three, four or five times this year. Any of these scenarios should be a positive overall outcome for bonds, and we expect Treasury yields to fall.” 10-year rate to 3.5% by the end of this year.

In Asia on Monday, trading levels were weak with a group of markets closed for the Lunar New Year holiday. Stocks in Australia, New Zealand, India and the Philippines drifted lower amid lack of indicators in the region. Markets including Japan, China, Hong Kong, Singapore, Taiwan and South Korea were closed.

The yen held steady near its lowest levels in two months, which it reached on Friday after comments from central bank governors that the Bank of Japan would take its time raising interest rates. The Japanese currency has weakened against all its G10 peers this year.

In basic commodities, oil prices fell after the progress that occurred last week, and the Iranian Foreign Minister said that the war in Gaza may be approaching a diplomatic solution.

Main events this week:

• Consumer price index in India, Monday

• Minneapolis Fed President Neel Kashkari, Fed Governor Michel Bowman, and Fed Chairman Tom Barkin speak on Monday

• ECB Executive Board member Piero Cipollone and chief economist Philip Lane speak on Monday

• US Consumer Price Index, Tuesday

• Unemployment in the UK, Tuesday

• Producer prices in Japan, Tuesday

• UK inflation, Wednesday

• Eurozone GDP, industrial production, Wednesday

• Presidential elections in Indonesia, Wednesday

• Bank of England Governor Andrew Bailey speaks on Wednesday

• ECB Governing Council member Boris Vujčić and ECB Vice President Luis de Guindos speak

• Chicago Fed President Austin Goolsbee speaks on Wednesday

• Jobs australia thursday

• Japanese GDP, Thursday

• UK GDP, Thursday

• US Initial Jobless Claims, Retail Sales, Thursday

• Central Bank of the Philippines meeting on interest rates, Thursday

• European Central Bank President Christine Lagarde speaks on Thursday

• Federal Reserve Governor Christopher Waller speaks Thursday

• Bank of England policymakers Catherine Mann and Megan Green speak on Thursday

• US housing construction begins, producer prices, Friday

• San Francisco Fed President Mary Daly and Fed Vice Chairman for Supervision Michael Barr speak Friday

Some key movements in the markets:

Stores

• The Stoxx Europe 600 Index was up 0.3% as of 8:06 a.m. London time

• S&P 500 futures were little changed

• Nasdaq 100 futures were little changed

• Dow Jones Industrial Average futures were little changed

• There was little change in the MSCI Asian stock index

• There was little change in the MSCI Emerging Markets Index

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro rose 0.1 percent to $1.0796

• The Japanese yen rose 0.2 percent to 149.05 yen to the dollar

• There was little change in the yuan in external transactions at 7.2196 to the dollar

• The British pound rose 0.1 percent to $1.2643

Digital currencies

• Bitcoin rose 0.2% to $48,232.01

• Ethereum fell 0.2% to $2,500.64

Bonds

• The 10-year Treasury yield fell 2 basis points to 4.15%.

• The yield on 10-year German bonds fell by three basis points to 2.35%.

• The yield on British 10-year bonds fell four basis points to 4.05%.

Goods

This story was produced with assistance from Bloomberg Automation.

–With assistance from Robert Brand and Sagarika Jaisinghani.

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