(Bloomberg) — European stocks fell along with US equity futures at the start of a data-heavy week that will test the market’s conviction that Federal Reserve Chair Jerome Powell and his colleagues are moving closer to dialing back their inflation fight.
Most Read from Bloomberg
First off is Tuesday’s US inflation data, which investors will use to predict when the Fed will start lowering interest rates. Swaps traders see the first cut in June as a virtual lock, with nearly four quarter-point cuts expected over the next year. A stronger-than-anticipated jump in consumer prices could upend that pricing and further derail the stocks rally.
The Stoxx Europe 600 index dropped 0.5% at the open, with basic resources leading declines after iron ore slumped 5% on slackening demand from China. Futures on the S&P 500 and Nasdaq 100 edged lower. The 10-year Treasury yield fell two basis points.
Meanwhile, a gauge of the dollar is on track for a seventh day of losses, its longest losing streak in almost four years, as the Japanese yen extended its meteoric rise on expectations the Bank of Japan is about to start lifting interest rates.
The drivers supporting the equity rally in the US are now better understood by the market and burden now falls on earnings and fundamentals to show more material improvement, according to Morgan Stanley’s chief US equity strategist Michael Wilson.
“A lack of a second-half growth inflection could serve as a headwind for economically sensitive areas of the market, particularly if the Fed holds off on cutting rates longer than expected,” said Wilson, who’s been among the most prominent bearish voices on Wall Street. His 2024 target for the S&P 500 is 4,500, implying a roughly 12% drop from Friday’s close.
Story continues
The MSCI Asia Pacific Index dropped for the first time in four sessions after Japanese shares slid the most since October, with the Topix Index falling more than 2%. The yen hovered just below the 147-handle against the dollar, extending last week’s 2% rally against the US currency — its best weekly gain since July.
Chinese equities bucked the gloom, with solar shares extending their recent gains as speculation the government may relax caps on renewable installation improved the outlook for the sector. Shares also rose on a report that Chinese regulators met financial institutions to ask large banks to enhance financing support for the property developer.
Read more: World’s Negative Interest Rate Experiment Nears Its End in Japan
Tuesday’s US consumer price index figures will dominate the economic data reports this week. The core prices gauge is seen rising 0.3% in February from a month earlier, and 3.7% on a year-over-year basis — which would be the smallest annual rise since April 2021.
Further moderation in US prices would support the disinflation narrative that broadly remains in tact, despite a pullback in the number of Fed rate cuts expected this year.
In commodities, gold rose toward a record on the Fed outlook, while oil held a loss ahead of reports from OPEC and the IEA this week that may provide clues on the demand outlook.
Key Events This Week:
CPI reports for Argentina, Brazil, Germany, India, US, Tuesday
UK jobless claims, unemployment, Tuesday
Japan PPI, Tuesday
India industrial production, Tuesday
Mexico international reserves, industrial production, Tuesday
Philippines trade, Tuesday
Turkey industrial production, current account, Tuesday
EU finance ministers meet in Brussels, Tuesday
ECB Governing Council Member Robert Holzmann speaks, Tuesday
Eurozone, UK industrial production, Wednesday
India trade, Wednesday
South Korea jobless rate, Wednesday
ECB Governing Council member Yannis Stournaras speaks, Wednesday
Swedish Riksbank First Deputy Governor and Deputy Governor speak, Wednesday
Saudi Arabia, Spain CPI, Thursday
US PPI, retail sales, initial jobless claims, business inventories, Thursday
Australia Treasurer Jim Chalmers delivers pre-budget address, Thursday
Canada housing starts, Friday
China property prices, Friday
France, Italy, Poland CPI, Friday
Indonesia trade, Friday
Japan tertiary index, Friday
New Zealand PMI, Friday
Philippines overseas remittances, Friday
Sri Lanka GDP
US industrial production, University of Michigan consumer sentiment, Empire Manufacturing, Friday
Japan’s largest union federation announces results of annual wage negotiations, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 0.4% as of 8:09 a.m. London time
S&P 500 futures fell 0.3%
Nasdaq 100 futures fell 0.4%
Futures on the Dow Jones Industrial Average fell 0.2%
The MSCI Asia Pacific Index fell 0.8%
The MSCI Emerging Markets Index rose 0.3%
Currencies
The Bloomberg Dollar Spot Index fell 0.1%
The euro was little changed at $1.0940
The Japanese yen rose 0.2% to 146.71 per dollar
The offshore yuan rose 0.2% to 7.1867 per dollar
The British pound fell 0.1% to $1.2843
Cryptocurrencies
Bitcoin rose 2.5% to $71,159.07
Ether rose 2.1% to $3,989.65
Bonds
The yield on 10-year Treasuries declined two basis points to 4.05%
Germany’s 10-year yield declined two basis points to 2.24%
Britain’s 10-year yield declined three basis points to 3.94%
Commodities
Brent crude was little changed
Spot gold rose 0.2% to $2,182.67 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Michael Msika, Farah Elbahrawy and Richard Henderson.
Most Read from Bloomberg Businessweek
©2024 Bloomberg L.P.