Stocks continue decline amid weaker rate-cut expectations

Global stocks retreated and Treasury yields held near four-month highs as solid economic readings and higher commodities prices reinforced the view that interest rates will remain higher for longer.

Those concerns have kept global equities from extending the previous quarter’s strong gains. The Stoxx 600 slid 0.1%, while futures pointed to further declines at the US open. Treasury 10-year yields rose three basis points to around 4.38%, up almost 20 basis points from last week’s close as traders pared expectations for the timing and scope of US rate cuts this year. 

Adding to the inflation fears, Taiwan’s strongest earthquake in 25 years cast uncertainty over chip production, as the world’s largest chipmaker, Taiwan Semiconductor Manufacturing Co. evacuated factory areas. Shares in the firm slipped 1.5%, while Asian bourses lost ground.

The spotlight Wednesday will be firmly on Federal Reserve Chair Jerome Powell, who last week said the central bank is awaiting more evidence that inflation is in check. A strong monthly US jobs print on Friday, coming on top of a robust reading on US manufacturing, could further dent policy-easing expectations.  

“We expect the cautious risk environment to persist into this Friday’s US non-farm payroll data release as the ‘good news is bad news’ mantra continues to play out,” said Jun Rong Yeap, strategist at IG Asia Pte. “The data will play a key role in further moving the dial around market rate views.” 

Swap traders currently price less than three Fed rate cuts in 2024, with a high chance that policy easing is delayed beyond June. That’s despite comments Tuesday from San Francisco President Mary Daly and the Cleveland Fed’s Loretta Mester, who threw their weight behind three cuts this year. 

Rising commodity prices meanwhile are also fanning inflation expectations, with Brent crude futures staying just off $89 a barrel after closing at the highest level since October on Tuesday. Copper advanced for a third day, while palm oil is at the highest since November 2022, raising the risk of higher global food inflation.

An index of the dollar was little changed. The yen was also flat against the greenback at around 151 per dollar, remaining around the weakest level of the year — keeping alive the possibility of official intervention to support the currency. 

Key events this week:

• Eurozone CPI, unemployment, Wednesday
• US ADP employment, ISM Services, Wednesday
• Fed Chair Jerome Powell speaks, Wednesday
• Fed’s Austan Goolsbee, Adriana Kugler and Michelle Bowman also speak, Wednesday
• 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

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 was little changed as of 9:19 a.m. London time
• S&P 500 futures fell 0.2%
• Nasdaq 100 futures fell 0.3%
• Futures on the Dow Jones Industrial Average fell 0.1%
• The MSCI Asia Pacific Index fell 0.7%
• The MSCI Emerging Markets Index fell 0.6%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0773
• The Japanese yen was little changed at 151.70 per dollar
• The offshore yuan was little changed at 7.2599 per dollar
• The British pound was little changed at $1.2574

Cryptocurrencies

• Bitcoin rose 0.7% to $66,192.93
• Ether rose 1% to $3,303.4

Bonds

• The yield on 10-year Treasuries advanced three basis points to 4.38%
• Germany’s 10-year yield was little changed at 2.40%
• Britain’s 10-year yield was little changed at 4.09%

Commodities

• Brent crude rose 0.1% to $89.01 a barrel
• Spot gold fell 0.5% to $2,269.33 an ounce

This story was produced with the assistance of Bloomberg Automation.