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European Stocks Slip as Fed Rate Bets Pushed Back: Markets Wrap

In Business
May 24, 2024

(Bloomberg) — European stocks slid Friday, playing catch-up with declines in the US and Asia, as traders pushed back expectations for the Federal Reserve’s first interest rate cut.

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The Stoxx Europe 600 benchmark fell 0.5%, on track for its first weekly retreat in three, with technology and financial stocks leading declines. Contracts for US stocks edged about 0.2% higher, after stronger-than-expected US business activity data sparked the biggest S&P 500 Index drop this month. Swaps now price the Fed to deliver its first rate cut in December, instead of November.

The change put the dollar on track for its biggest weekly gain since early April against a basket of peers, while rate-sensitive Treasury two-year yields traded just off the three-week highs hit on Thursday. Earlier in the week, minutes of the Fed’s May meeting showed policymakers were in no rush to cut rates, with some even seeing a need for more restrictive policy.

“The bigger picture is one of a US economy that is stronger than we would have expected at this juncture with the current level of interest rates,” Anders Faergemann, a portfolio manager at Pinebridge Investments, said. Market sentiment will stay firm as long as as Fed Chair Jerome Powell “signals rate cuts and eliminates any thoughts of rate hikes,” he said.

Investors are unlikely to place big bets either way before a long weekend in the US and UK, while there is also some trepidation that the shift to a faster settlement cycle in the US could trigger some failed trades after Wall Street returns from Monday’s holiday.

Among individual stock movers, DS Smith Plc fell as much as 4.2% in London amid uncertainty over International Paper Co.’s plan to acquire the UK packaging company. In New York premarket trading, chip stocks Micron Technology Inc. and Microchip Technology Inc. made gains, though Nvidia Corp. slipped after blockbuster quarterly results propelled it to new record highs.

In commodities, oil held near its lowest level in over three months, amid concerns over demand at the upcoming Memorial Day weekend which marks the start of the US summer driving season.

Key events this week:

  • Canada retail sales, Friday

  • Germany GDP, Friday

  • US durable goods, consumer sentiment, Friday

  • Fed’s Christopher Waller speaks, Friday

Some of the main market moves:

Stocks

  • The Stoxx Europe 600 fell 0.5% as of 9:29 a.m. London time

  • S&P 500 futures rose 0.2%

  • Nasdaq 100 futures rose 0.1%

  • Futures on the Dow Jones Industrial Average were little changed

  • The MSCI Asia Pacific Index fell 0.8%

  • The MSCI Emerging Markets Index fell 0.7%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro was little changed at $1.0821

  • The Japanese yen was little changed at 157.08 per dollar

  • The offshore yuan was little changed at 7.2589 per dollar

  • The British pound was little changed at $1.2698

Cryptocurrencies

  • Bitcoin fell 1.6% to $66,696.1

  • Ether fell 3.1% to $3,639.07

Bonds

  • The yield on 10-year Treasuries was little changed at 4.47%

  • Germany’s 10-year yield declined one basis point to 2.58%

  • Britain’s 10-year yield was little changed at 4.25%

Commodities

  • Brent crude fell 0.2% to $81.20 a barrel

  • Spot gold rose 0.3% to $2,336.77 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu and Chiranjivi Chakraborty.

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