European stocks and US futures struggled to build on Friday’s strong rebound amid lingering concerns about the health of the banking system and the effect of tight monetary policy on economic growth.
The Stoxx Europe 600 index edged higher, with energy stocks outperforming as crude oil gained. With UK markets closed for a a holiday in honor of King Charles III, trading volumes were relatively modest. US futures fluctuated after the S&P 500 jumped 1.9% Friday to halt its longest losing streak since February. A gauge of the dollar slipped for a fifth straight day.
The European Central Bank needs to continue raising interest rates amid a “too high” underlying inflation rate, Governing Council member Klaas Knot said Sunday. ECB President Christine Lagarde also signaled that there are more hikes to come after the central bank last week raised the deposit rate by a quarter-point to 3.25%, following three moves of double that size.
US payroll data published Friday showed hiring and worker pay gains accelerated in April in signs of labor-market resilience and inflationary pressures in the face of headwinds. The solid data has tempered fears of a US recession.
The employments figures also increased speculation the Federal Reserve will keep interest rates higher for longer and potentially leave the door open to an 11th straight hike in June.
Rates on swap contracts linked to Fed meetings — which on Thursday briefly priced in a cut in July — moved higher, to levels consistent with a stable policy rate until September, followed by at least two quarter-point cuts by year-end.
“Unless we see a sharp turnaround in the inflation numbers, the Fed ought to be quite comfortable with where policy rates are right now,” Tai Hui, chief Asia market strategist at JPMorgan Asset Management, said on Bloomberg Television.
Worries remain
Despite Friday’s stock rebound, investors still have much to worry about. The rout in US bank shares has the S&P 500 financials index on the verge of falling back below its 2007 peak.
Meanwhile, Treasury Secretary Janet Yellen sees “simply no good options” for solving the debt limit stalemate in Washington without Congress raising the cap. She even cautioned that resorting to the 14th Amendment would provoke a constitutional crisis.
“We see a chance that Treasury’s cash amount is enough to sustain till mid-June and probably slightly beyond that,” Oversea-Chinese Banking Corp. strategists Frances Cheung and Christopher Wong wrote in a note. However, “the irregular nature of fiscal receipts and outlays shall render investors staying cautious,” they said.
Investors are also awaiting the release this week of the US core consumer price index, which excludes food and energy and is closely watched by the Fed. It is projected to show a 5.5% increase in April from a year ago.
In Asia, attention will swing to China’s trade figures due in the first half of the week and inflation numbers set for release on Thursday.
Elsewhere in markets, oil ticked higher as investors assessed a complex outlook for global demand after a period of volatile trading. Gold gained.
Key events this week:
- US wholesale inventories, Monday
- US President Joe Biden scheduled to meet with congressional leaders on debt limit, Tuesday
- New York Fed President John Williams speaks to Economic Club of New York, Tuesday
- US CPI, Wednesday
- China PPI, CPI, Thursday
- UK BOE rate decision, industrial production, GDP, Thursday
- US PPI, initial jobless claims, Thursday
- Group of Seven finance minister and central bank governors meet in Japan, Thursday
- US University of Michigan consumer sentiment, Friday
- Fed Governor Philip Jefferson and St. Louis Fed President James Bullard participate in panel discussion on monetary policy at Stanford University, Friday.
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.2% as of 8:24 a.m. London time
- S&P 500 futures rose 0.1%
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average rose 0.1%
- The MSCI Asia Pacific Index rose 0.5%
- The MSCI Emerging Markets Index rose 0.7%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.2% to $1.1046
- The Japanese yen fell 0.1% to 134.95 per dollar
- The offshore yuan was little changed at 6.9197 per dollar
- The British pound was little changed at $1.2645
Cryptocurrencies
- Bitcoin fell 2.7% to $28,173.25
- Ether fell 2.9% to $1,863.32
Bonds
- The yield on 10-year Treasuries was little changed at 3.43%
- Germany’s 10-year yield advanced one basis point to 2.30%
Commodities
- Brent crude rose 1% to $76.02 a barrel
- Spot gold rose 0.2% to $2 021.66 an ounce
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