European Stock Futures Steady, Yen Rebounds: Markets Wrap

(Bloomberg) — European stocks were set for a steady start after Asian shares rallied after economic data supported the case for Federal Reserve interest-rate cuts. The yen bounced off its lowest level against the dollar since 1986.

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Euro Stoxx 50 futures were flat, tracking a similar move in contracts for US equities after the S&P 500 and Nadaq 100 index climbed to a record high in a holiday-shortened session Wednesday. The pound was steady ahead of the UK general election where the Labour Party is expected to win by a landslide.

The MSCI Asia-Pacific gauge hit its highest point in over two years, with technology shares contributing the most to the rally. Japan’s Topix climbed to a record intraday high and equities in South Korea, Taiwan, and Australia also advanced.

The yen strengthened after once again touching its lowest level since 1986 against the greenback in the previous session. Speculation persists that the Bank of Japan will tighten policy only gradually. A gauge of dollar weakened for the third successive session.

“Weaker Treasury yields and a dip in the US dollar on dovish rate bets may be supportive of risk sentiments across the region,” said Jun Rong Yeap, market strategist at IG Asia Pte. The “slowing US growth prospects” are making a September rate cut “more likely than not,” he said.

Global stocks are on track for their longest stretch of weekly gains since March, driven by a series of soft economic data in the US, which has revived the possibility of rate cuts in September. On Wednesday, reports showed the American services sector contracted at the fastest pace in four years, and the labor market saw further signs of softening.

Treasury 10-year yields dropped seven basis points to 4.36% in the prior session, which weighed on an index of dollar strength. Most Asian currencies gained against the greenback led by Thailand’s baht and Korean won.

Minutes from the Fed’s June policy meeting showed officials were awaiting evidence that inflation is cooling and were divided on how long to keep rates elevated. Swap traders projected almost two rate cuts in 2024, with the first in November — though bets on a September reduction increased.

“Bad news is good news,” said Fawad Razaqzada at City Index and Forex.com. “That’s how risk assets reacted in the aftermath” of Wednesday’s US data.

Elsewhere in Asia, Chinese stocks trailed peers in rest of the region amid concerns over economic recovery flailing ahead of the crucial third plenum of the communist party later this month. Chinese shares in Hong Kong snapped a three-day rally.

Chinese electric-car brands held on to their share of the slumping European EV market in May. Automakers like BYD Co. made up 8.7% of total EV sales, roughly on par with a year ago, as Chinese firms pressure European counterparts with new, inexpensive models.

Traders are watching for indications if President Joe Biden will drop out of the US presidential race. Wall Street has started shifting money to and from the dollar, Treasuries and other assets that would be impacted if his rival Donald Trump returns to office.

“The UK and French elections will be more of a temporary concern for the markets,” Adrian Zuercher, chief investment officer at UBS AG Private Banking told Bloomberg Radio. But “Trump is a different story, particularly, the trade war situation, we will have to see how aggressive he will be on tariffs and that might resonate a little bit longer” with the markets, he said.

Investors will now keep an close eye on Friday’s US jobs report. Economists anticipate a 190,000 gain in June non-farm payrolls — less than the previous month — with the unemployment rate holding at 4%.

“Given other evidence of a cooling economic backdrop, the payroll report could be increasingly decisive for the Fed as it seeks a rationale to signal an easing of rates,” said Quincy Krosby at LPL Financial.

Chicago Fed President Austan Goolsbee said there’s still a lot of data the US central bank needs to see before gaining the confidence to cut interest rates.

In commodities, gold was steady after breaking out of a days-long tight trading range on Wednesday. Iron ore futures climbed to the highest level in nearly a month on optimism for improvement in demand from China.

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