European markets react to Fed's rates narrative

Stocks fluctuated in Europe as investors reset their expectations of when the Federal Reserve will start cutting interest rates and assessed a deluge of corporate earnings.

Europe’s Stoxx 600 index erased an early decline on a crowded day in the region’s reporting calendar. Adidas AG slumped 7% after providing lower-than-expected profit guidance, while BNP Paribas SA dropped 8% after lowering its performance targets for 2025. Deutsche Bank AG rallied after announcing a share buyback and a higher revenue goal.

A gauge of Asian stocks slipped 0.4%. Aozora Bank Ltd. fell 21% in Tokyo after it announced losses tied to US commercial property, echoing troubles for New York Community Bancorp in America. US equity futures signaled a partial rebound after the S&P 500 dropped 1.6% Wednesday, the most since September.  

Chair Jerome Powell said after Wednesday’s decision he doesn’t think it’s likely the Fed will cut in March. In a sign that officials are not in a hurry to lower rates, the central bank also said it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.” A Bank of England rates announcement is also due shortly. 

“The market got ahead of itself in the last few months and it feels like we will get a respite as rate decreases start to get priced out and we see more rhetoric from central banks pushing back on rate cuts,” said Justin Onuekwusi, chief investment officer at wealth manager St James Place Management Svs Ltd. “I think we will see similar rhetoric from the BOE in that there are too many rate decreases priced in.”

The BOE is expected to leave its key lending rate at a 16-year high later Thursday, while delivering a brighter outlook for the UK economy, reducing its forecast for inflation this year and potentially opening the way to policy easing. Sweden’s Riksbank held rates steady and said it may lower borrowing costs as soon as the first half of the year, pivoting from a tightening campaign. The Swedish krona fell after the decision.

Treasuries pared some of Wednesday’s gains after Powell’s comments and amid the fresh concerns about regional lenders. A gauge of dollar strength ticked higher, with the yen the only gainer against the greenback among its Group-of-10 peers.

The market’s focus returns to US megacap earnings later, with Apple Inc., Amazon.com Inc. and Meta Platforms Inc. all reporting. Their updates will give fresh insights on how the companies at the heart of the recent rally on Wall Street are matching up to demanding expectations from investors.

JANUARY BAROMETER

Despite Wednesday’s losses, the S&P 500 and a gauge of global stocks advanced for a third straight month last month.

As goes January, so goes the year. That’s the theory of a phenomenon known as the “January Barometer” — Wall Street folklore positing that if stocks rise in that month, they’ll be poised to finish the year higher, and vice versa. Since 1938, the Barometer has been right about 74% of the time, with the next 11 months higher 67% of the time, according to the Stock Trader’s Almanac.

Oil rebounded after the biggest decline in three weeks on Wednesday as investors weighed the risks from any US retaliation to a deadly attack in Jordan against signs of robust American supply.

Corporate highlights

• Deutsche Bank AG plans to cut 3,500 jobs over the coming years as Chief Executive Officer Christian Sewing seeks to make good on a pledge to lift profitability and return more money to shareholders.
• Shell Plc maintained the pace of its share buybacks after a strong performance from its gas traders offset the impact of lower commodity prices in the fourth quarter.
• Glencore Plc is cutting its production target for cobalt this year in response to weak market conditions, which prompted the miner to stockpile metal that’s proving tough to sell.
• ING Groep NV warned its key revenue source will weaken as it passes on higher rates to depositors.
• BNP Paribas SA lowered performance targets for 2025 citing factors including the European Central Bank’s end to payments on reserves, and booked a slump in fourth-quarter profit driven partly by legal provisions.
• Julius Baer Group Ltd. said it would exit its private debt business after writing down all of its loans to the bankrupt Signa companies, and confirmed that Chief Executive Officer Philipp Rickenbacher is stepping down as a result of the matter.
• Roche Holding AG forecast a sluggish recovery in sales and earnings this year as it emerges from a difficult 2023 and a string of research setbacks.
• BT Group Plc earnings rose in the third fiscal quarter, in line with expectations, offering momentum to incoming Chief Executive Officer Allison Kirkby as she seeks to establish stable growth after years of turmoil.
• Adidas AG said its profit this year will be hit by unfavorable currency movements, but it plans to mitigate some of the damage by continuing to sell left-over inventory from its defunct Yeezy partnership with the rapper Ye.

Key events this week include: 

• Eurozone S&P Global Manufacturing PMI, CPI, unemployment, Thursday
• US productivity, construction spending, ISM Manufacturing, initial jobless claims, Thursday
• Apple, Amazon, Meta earnings, Thursday
• Bank of England interest rate decision, Thursday
• US employment report, University of Michigan consumer sentiment, factory orders, Friday

Play Video

Some of the main moves in markets:  

Stocks

• The Stoxx Europe 600 was little changed as of 9:34 a.m. London time
• S&P 500 futures rose 0.3%
• Nasdaq 100 futures rose 0.6%
• Futures on the Dow Jones Industrial Average rose 0.1%
• The MSCI Asia Pacific Index fell 0.4%
• The MSCI Emerging Markets Index rose 0.4%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro fell 0.2% to $1.0798
• The Japanese yen was little changed at 146.79 per dollar
• The offshore yuan was little changed at 7.1936 per dollar
• The British pound fell 0.3% to $1.2653

Cryptocurrencies

• Bitcoin fell 0.7% to $42,163.45
• Ether fell 0.4% to $2,268.12

Bonds

• The yield on 10-year Treasuries advanced three basis points to 3.94%
• Germany’s 10-year yield advanced three basis points to 2.20%
• Britain’s 10-year yield advanced two basis points to 3.82%

Commodities

• Brent crude rose 0.7% to $81.13 a barrel
• Spot gold rose 0.1% to $2,042.25 an ounce

This story was produced with the assistance of Bloomberg Automation.