European Stocks, US Futures Fall Amid Fed Caution: Markets Wrap

(Bloomberg) — European stocks and US equity futures slipped as investors balanced further signs of China’s reopening with cautious commentary from the Federal Reserve’s latest meeting.

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The Stoxx Europe 600 Index fell 0.3% in early trading, with consumer products stocks leading declines. Among individual movers, Next Plc gained as the UK retailer raised its profit forecast. Contracts on the S&P 500 and the Nasdaq 100 were about 0.3% lower. Chinese mainland and Hong Kong equity gauges rose in a rally helped along by news the border with China will gradually reopen. The Hang Seng Index climbed to the highest level since July and a gauge of Asian equities advanced.

The minutes of the Fed’s December meeting showed many officials highlighted the need to curb inflation without slowing the economy too much, heartening some investors. Meanwhile, traders are returning to Chinese equities amid a growing conviction the relaxation of virus curbs will fuel a revival in consumption and spending.

“Optimism on reopening and supportive policy can continue to drive the market for now, along with investors’ fear of missing out, but at some point it will have to take a pause for re-evaluation,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “It’s always hard to call an end to momentum-driven rallies.”

The dollar edged higher, while Treasuries gave up some of the prior day’s gains. The yen steadied after a 1.2% decline against the dollar on Wednesday.

Crude oil rose after falling 9.5% in the past two days, including the biggest daily decline since September on Wednesday. China’s complicated reopening is one factor that drove the drop. The price of gold whipsawed after touching the highest level since June on Wednesday.

US data released Wednesday showed improving supply-chain conditions, declining input prices and slower demand — all developments the Fed would welcome. Still, Amazon.com Inc. said it is laying off more than 18,000 workers — a significantly bigger number than previously planned — in the latest sign that a technology slump is deepening. The nonfarm payrolls report on Friday will provide a clearer picture of the labor market.

“The Fed wanted to send a message to the market that they would not be easing or cutting rates anytime in 2023,” said Joe Gilbert, portfolio manager for Integrity Asset Management. “However, we must remember that the Fed also did not forecast raising rates by 400 basis points 12 months ago, so their forecasting ability of their own actions is sometimes quizzical.”

Read More: Fed Affirms Inflation Resolve, Pushes Back Against Rate-Cut Bets

Key events this week:

Eurozone PPI, Thursday
US ADP employment change, initial jobless claims, Thursday
China trade, Caixin PMI, Thursday
Eurozone retail sales, CPI, consumer confidence, Friday
Germany factory orders, Friday
US nonfarm payrolls, factory orders, durable goods, Friday

Some of the main moves in markets:

Stocks

The Stoxx Europe 600 fell 0.3% as of 8:11 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 0.3%
The MSCI Asia Pacific Index rose 0.2%
The MSCI Emerging Markets Index rose 0.7%

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0608
The Japanese yen fell 0.2% to 132.84 per dollar
The offshore yuan rose 0.3% to 6.8818 per dollar
The British pound fell 0.4% to $1.2003

Cryptocurrencies

Bitcoin was little changed at $16,822.62
Ether fell 0.2% to $1,250.52

Bonds

The yield on 10-year Treasuries advanced three basis points to 3.71%
Germany’s 10-year yield advanced four basis points to 2.31%
Britain’s 10-year yield advanced two basis points to 3.51%

Commodities

Brent crude rose 0.6% to $78.27 a barrel
Spot gold fell 0.5% to $1,845.63 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Charlotte Yang and Nicholas Reynolds.