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Dollar Slips, Stocks Gain After Dovish Fedspeak: Markets Wrap

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Dollar Slips, Stocks Gain After Dovish Fedspeak: Markets Wrap

(Bloomberg) — The dollar weakened against the euro and most other currencies after a slew of Federal Reserve officials laid out the case for a downshift in the US central bank’s rate-tightening campaign, contrasting with the hawkish drumbeat from European policymakers.

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Europe’s Stoxx 600 benchmark ticked higher following a stronger session in Asia where a holiday-thinned session saw Japan’s Topix index gain around 1%, while US equity index futures reversed earlier falls to trade marginally positive. The underlying indexes snapped a four-day losing streak on Friday, buoyed by a tech stocks rally and a dialing back in Fed rhetoric.

Rate cut bets and recession expectations also weighed on the dollar which shed 0.2% against a basket of peers on Monday for its third day of losses, while 10-year Treasury yields slipped. The euro meanwhile strengthened to the highest since April 2022.

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Markets are taking their cue from Federal Reserve speakers, such as Governor Christopher Waller who said on Friday policy looked pretty close to sufficiently restrictive and he backed moderation in the size of rate increases.

A divergence in rate bets has weighed on the dollar and American equities. The S&P 500’s 3.5% gain so far this year contrasts with the near-7% gain on European stocks. One reason is the view that Europe could dodge recession this year, while the US economy is widely expected to fall into recession in the second half of 2023, with the ongoing wrangling in Congress over the debt ceiling posing an additional headwind for markets.

European Central Bank policymaker Klaas Knot spoke in favor of continuing with half-point interest-rate increases at the next two meetings, echoing hawkish comments made last week by fellow ECB officials.

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That has helped the euro gain almost 2% this year against the greenback after a loss of close to 6% last year.

The yen also gained 0.5% on Monday. Earlier on Monday, Japanese 10-year yields slipped after the central bank acted to stem the rise in bond yields by offering banks ¥1 trillion yen ($7.7 billion) of collateralized loans. Yields slipped to 0.375%, well below policymakers’ 0.5% ceiling.

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Elsewhere, oil edged lower as investors assessed the outlook for demand following China’s reopening and risks to Russian output in 2023. Gold fell.

Key events this week:

  • Earnings for the week include: Abbott Laboratories, American Airlines, American Express, AT&T, Blackstone, Boeing, Colgate-Palmolive, Freeport-McMoRan, General Electric, Intel, International Business Machines, Johnson & Johnson, LVMH Moet Hennessy Louis Vuitton, Mastercard, Nokia, SAP, Southwest Airlines, Texas Instruments, Verizon Communications, Visa

  • Euro area consumer confidence, Monday

  • US Conference Board leading index, Monday

  • ECB President Christine Lagarde speaks, Monday

  • PMIs for US, euro area, UK, Japan, Tuesday

  • Richmond Fed Manufacturing, Tuesday

  • ECB President Christine Lagarde speaks, Tuesday

  • US MBA mortgage applications, Philadelphia Fed non-manufacturing activity, Wednesday

  • US fourth-quarter GDP, new home sales, initial jobless claims, good trade balance, durable goods, wholesale inventories, retail inventories, Thursday

  • Japan Tokyo CPI, Friday

  • US personal income/spending, University of Michigan consumer sentiment, pending home sales, Friday

Here are some of the main market moves:

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Stocks

  • The Stoxx Europe 600 rose 0.2% as of 8:42 a.m. London time

  • S&P 500 futures were little changed

  • Nasdaq 100 futures were little changed

  • Futures on the Dow Jones Industrial Average were little changed

  • The MSCI Asia Pacific Index rose 0.5%

  • The MSCI Emerging Markets Index rose 0.2%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2%

  • The euro rose 0.4% to $1.0895

  • The Japanese yen fell 0.1% to 129.76 per dollar

  • The offshore yuan rose 0.1% to 6.7723 per dollar

  • The British pound rose 0.1% to $1.2414

Cryptocurrencies

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  • Bitcoin rose 0.6% to $22,730.57

  • Ether rose 0.3% to $1,633.27

Bonds

  • The yield on 10-year Treasuries was little changed at 3.47%

  • Germany’s 10-year yield declined one basis point to 2.17%

  • Britain’s 10-year yield declined four basis points to 3.33%

Commodities

This story was produced with the assistance of Bloomberg Automation.

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