(Bloomberg) — European stocks edged higher as investors prepared for potential unprecedented monetary policy tightening by the region’s central bank later Thursday. Bonds climbed after Australia’s central bank chief signaled a possible end to jumbo interest-rate hikes.
(Bloomberg) — European stocks edged higher as investors prepared for potential unprecedented monetary policy tightening by the region’s central bank later Thursday. Bonds climbed after Australia’s central bank chief signaled a possible end to jumbo interest-rate hikes.
Europe’s Stoxx 600 Index gained 0.4%, with the basic resources and insurance sectors leading the advance. Retailers lagged after a profit warning from Primark-owner Associated British Foods Plc. US equity futures were little changed following a near-2% advance in the S&P 500 and Nasdaq 100 on Wednesday. An Asian stock gauge rebounded from the lowest level since 2020.
Treasuries pushed higher, lowering the US 10-year yield to 3.25%, after Reserve Bank of Australia Governor Philip Lowe staked out an outlier position among G-10 currency nations, signaling a potential end to outsized interest-rate increases.
In the meantime, investors face the harsh reality of sharp rate rises. The European Central Bank takes center stage later Thursday, with Bloomberg Economics predicting a 75 basis points increase to front-load tightening even as the region grapples with an energy crisis.
The dollar was firm, while the yen erased losses after Japanese officials arranged a meeting to discuss international financial markets. Greenback strength is pressuring some Asian policy makers to step up efforts to curtail currency weakness.
Central banks are walking a tightrope, raising interest rates sharply to tackle inflation while remaining leery of sparking a damaging economic contraction in the process. The uncertainty is whipsawing markets and has saddled equities and bonds with steep losses this year.
Federal Reserve officials reiterated their determination to get inflation under control. Vice Chair Lael Brainard said interest rates will need to rise to restrictive levels, while cautioning risks would become more two-sided in the future. Chair Jerome Powell is due to speak on Thursday.
“What’s clear to us is the Fed continues to emphasize they are not done until they see inflation coming back toward that 2% target,” Nadia Lovell, UBS Global Wealth Management’s senior US equity strategist, said on Bloomberg Radio.
Goldman Sachs Group Inc. economists lifted their forecast for the pace of Fed interest rate increases, expecting the Fed to hike by 75 basis points this month and 50 basis points in November, up from previous forecasts of 50 basis points and 25 basis points respectively. They are tipping a 25 basis points move in December.
The Fed’s Beige Book report said US economic expansion prospects were weak, while adding that price growth showed signs of decelerating.
Elsewhere, oil pared a sharp slide this week sparked by demand risks from monetary tightening and China’s Covid travails — the megacity of Chengdu extended a weeklong lockdown in most downtown areas.
Gold wavered, while Bitcoin held above the $19,000 level.
What to watch this week:
- European Central Bank rate decision, Thursday
- Fed Chair Jerome Powell due to speak, Thursday
- Chicago Fed President Charles Evans and his Minneapolis counterpart Neel Kashkari due to speak, Thursday
- EU energy ministers extraordinary meeting on emergency intervention in electricity markets, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.4% as of 8:23 a.m. London time
- Futures on the S&P 500 were little changed
- Futures on the Nasdaq 100 were little changed
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index rose 1.1%
- The MSCI Emerging Markets Index rose 0.1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.2% to $0.9987
- The Japanese yen was little changed at 143.82 per dollar
- The offshore yuan fell 0.2% to 6.9696 per dollar
- The British pound fell 0.3% to $1.1495
Bonds
- The yield on 10-year Treasuries declined two basis points to 3.25%
- Germany’s 10-year yield was little changed at 1.57%
- Britain’s 10-year yield declined three basis points to 3.01%
Commodities
- Brent crude rose 0.6% to $88.53 a barrel
- Spot gold was little changed
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