Stocks Edge Higher as Traders Boost Fed Cut Bets: Markets Wrap

(Bloomberg) — European stock futures rose and shares in Asia mostly gained after traders bolstered bets on Friday that the Federal Reserve will lower interest rates this year.

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Euro Stoxx 50 increased 0.4%, while contracts for US equities were steady. The MSCI Asia Pacific share index climbed for a third session after a surprise decline in US producer prices Friday reinforced bets the Fed will lower borrowing costs in coming months.

The dollar and Treasury futures were both little changed in Asia with overall trading levels appearing muted as Monday is a public holiday in the US.

Swaps traders see around an 80% chance that the Fed’s easing cycle will start in March, up from about 62% earlier last week, according to data compiled by Bloomberg.

“This week’s US economic data will either curtail money market expectations of aggressive Fed funds rate cut or validate them,” Win Thin, global head of currency strategy at Brown Brothers Harriman & Co., wrote in a note. “Given extreme market positioning, we believe the dollar’s downside is limited with the risks skewed to the upside,” he said.

Japanese stocks rose after both the Topix and the Nikkei 225 indexes climbed to 34-year highs last week amid inflows from overseas investors. Stocks also advanced in Taiwan after the Democratic Progressive Party won the presidential election and the more China-friendly Kuomintang gained too few seats to control the assembly.

China’s CSI 300 Index fluctuated between gains and losses amid speculation officials may lower the required reserve ratio after the People’s Bank of China unexpectedly left the rate on its one-year policy loans at 2.5% Monday. That was contrary to expectations among economists that it would trim the so-called medium-term lending facility by 10 basis points.

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“Rate cuts are likely still on the cards, but China looks to be taking a more measured approach to policy easing,” said Marvin Chen, an analyst at Bloomberg Intelligence in Hong Kong.

In the corporate world, Baidu Inc. sank the most since 2022 in Hong Kong trading following a report that linked its Ernie AI platform to key Chinese military research into artificial intelligence. The decline dragged down other Hong Kong-listed tech shares.

Along with more US earnings reports, investors this week will be focused on inflation readings in Germany and the UK, as well as a swath of political leaders and officials including Chinese Premier Li Qiang attending the annual World Economic Forum at Davos, Switzerland. A speech by Federal Reserve Governor Christopher Waller, after officials last week attempted to temper any expectation of a looming rate cut, will also be closely watched.

In commodities, oil was steady as the risk that airstrikes by the US and allies against the Houthis would ignite a wider conflict and disrupt crude flows from the Middle East was balanced by soft fundamentals.

Some key events in markets this week:

• World Economic Forum in Davos begins, with this year’s theme “Rebuilding Trust,” Monday

• Eurozone industrial production, Monday

• Eurozone finance ministers meet in Brussels, Monday

• Germany to release 2023 growth figures, including an estimate for the fourth quarter, Monday

• Iowa Republican caucuses, the first nominating contests for the 2024 US presidential election, Monday

• Japan PPI, Tuesday

• Germany CPI, ZEW survey expectations, Tuesday

• UK unemployment, Tuesday

• US Empire Manufacturing, Tuesday

• Goldman Sachs Group Inc., Morgan Stanley to report earnings, Tuesday

• Federal Reserve Governor Christopher Waller speaks, Tuesday

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

• Eurozone CPI, Wednesday

• UK CPI, Wednesday

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

• Federal Reserve issues Beige Book survey, Wednesday

• European Central Bank President Christine Lagarde speaks at Davos, Wednesday

• New York Fed President John Williams speaks, Wednesday

• Australia unemployment, Thursday

• Japan industrial production, Thursday

• European Central Bank publishes account of December policy meeting, Thursday

• US housing starts, initial jobless claims, Thursday

• Atlanta Fed President Raphael Bostic speaks, Thursday

• Japan CPI, Friday

• US existing home sales, University of Michigan consumer sentiment, Friday

• US Congress faces deadline to pass spending agreement before part of federal government shuts down, Friday

• San Francisco Fed President Mary Daly speaks, Friday

Here are some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 6:44 a.m. London time. The S&P 500 was little changed on Friday

• Nasdaq 100 futures rose 0.2%. The Nasdaq 100 was little changed

• Euro Stoxx 50 futures rose 0.4%

• Japan’s Topix index rose 1.2%

• Hong Kong’s Hang Seng Index fell 0.3%

• China’s Shanghai Composite Index rose 0.1%

• Australia’s S&P/ASX 200 Index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro rose 0.1% to $1.0964

• The Japanese yen fell 0.2% to 145.24 per dollar

• The offshore yuan was little changed at 7.1823 per dollar

• The Australian dollar was little changed at $0.6687

• The British pound was little changed at $1.2755

Cryptocurrencies

• Bitcoin rose 0.3% to $42,661.51

• Ether fell 0.4% to $2,515.67

Bonds

Commodities

• West Texas Intermediate crude was little changed

• Spot gold rose 0.3% to $2,056.18 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Zhu Lin.

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