Stocks, bonds gain as Powell signals rate cuts are ahead

Stocks rose and Treasury yields pulled away from four-month highs after Federal Reserve chief Jerome Powell reaffirmed the central bank is on track to cut interest rate cuts this year.

Europe’s Stoxx 600 index rose 0.2%, while futures for the Nasdaq 100 climbed almost 0.5%, lifted by Powell’s comments that recent inflation figures did not “materially change” the overall picture. That view has knocked 10-year Treasury yields off the highs touched this week while Bloomberg’s dollar index extended its slide, following its biggest one-day fall in nearly four weeks. 

“I think Powell wants to get the process started in terms of the cutting cycle,” said Jamie Niven, senior portfolio manager at Candriam. “We’ve seen some strong data in the last few days, but I don’t think it’s absurd for them to cut from quite restricted territory.” 

Jitters remain, however, as a blowout reading for March private payrolls hinted at the possibility of a similarly strong number for the monthly non-farm payrolls print on Friday. Swap markets still price less than three rate cuts for 2024, and see only a 56% chance of the easing cycle starting in June. 

Optimism was also tempered by Atlanta President Raphael Bostic forecasting only one rate cut this year, which would be in the fourth quarter.

Euro-area bond yields meanwhile slid on expectations the European Central Bank will kick off policy easing on June 6 and cut rates three more times by year-end. 

Inflation fears are also being fanned by strength in commodity prices, with Brent oil futures approaching five-month highs after OPEC+ confirmed plans to continue tightening crude supply. Copper rose to a 14-month peak and gold is trading near record highs above $2,300 per ounce.

Among individual stock movers, chipmakers such as Micron Technology Inc. and Advanced Micro Devices Inc. rose in premarket trading as analysts see limited impact on the semiconductor market from Taiwan’s recent earthquake. Taiwan Semiconductor Manufacturing Co., which supplies chips to Apple Inc. and Nvidia Corp., said there was “no damage to critical tools.”

Key events this week:

• Eurozone S&P Global Services PMI, PPI, Thursday
• US initial jobless claims, Challenger job cuts, Thursday
• Fed’s Loretta Mester, Alberto Musalem, Thomas Barkin, Patrick Harker, Austan Goolsbee speak, Thursday
• European Central Bank publishes account of March rate decision, Thursday
• Eurozone retail sales, Friday
• US unemployment, nonfarm payrolls, Friday
• Fed’s Michelle Bowman, Thomas Barkin and Lorie Logan speak, Friday

Stocks

• The Stoxx Europe 600 rose 0.1% as of 9:48 a.m. London time
• S&P 500 futures rose 0.3%
• Nasdaq 100 futures rose 0.4%
• Futures on the Dow Jones Industrial Average rose 0.3%
• The MSCI Asia Pacific Index rose 0.7%
• The MSCI Emerging Markets Index rose 0.5%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.2% to $1.0857
• The Japanese yen was little changed at 151.74 per dollar
• The offshore yuan was little changed at 7.2473 per dollar
• The British pound was little changed at $1.2659

Cryptocurrencies

• Bitcoin rose 0.6% to $66,157.99
• Ether rose 0.6% to $3,328.2

Bonds

• The yield on 10-year Treasuries advanced one basis point to 4.36%
• Germany’s 10-year yield declined two basis points to 2.37%
• Britain’s 10-year yield declined four basis points to 4.02%

Commodities

• Brent crude fell 0.1% to $89.22 a barrel
• Spot gold fell 0.4% to $2,291.66 an ounce

This story was produced with the assistance of Bloomberg Automation.