Stocks gain, bond yields fall as rate-cut bets intensify

Stocks advanced and bond yields dropped as fresh signs of an economic slowdown prompted investors to ramp up bets on interest-rate cuts next year.

Europe’s Stoxx 600 index rose 0.9%, on track for a 2.7% rally this week, and US futures climbed. Bonds added to Thursday’s gains, with markets now pricing a full percentage point of rate reductions next year from the European Central Bank. The pound slid and gilt yields fell as much as 12 basis points as data showed a surprise drop in UK retail sales last month.

This week’s soft inflation and jobs data in the US has fueled the conviction that aggressive policy-tightening cycles from the Federal Reserve and other central banks are finally at an end. That view helped drive $23.5 billion into stock funds in the week through Nov. 15, the second-biggest inflows of the year, Bank of America Corp. said, citing EPFR Global data.

But there are signs the rate hikes are finally crimping economic growth and company earnings. Oil prices dropped into a bear market, down 20% from their September highs. The chief executive officer of Walmart Inc., the world’s largest retailer, said on Thursday he sees potential for deflation. 

BofA Says Global Stock Funds Draw Second-Biggest Inflows of 2023

“At some point, investors will have a negative reaction to what’s looking increasingly like a recession,” said Melissa R Brown, global head of research at Qontigo GmbH. “Eventually, we will get rate cuts, but as we see company earnings weakening and consumers cutting back on spending, that’s initially not going to be good for markets.” 

Traders will be watching for possible pushback against rate-cut expectations from policy makers on Friday, with a slew of central bankers from the ECB, Bank of England and Fed all due to speak.  

In Asia, stocks were undermined by a 10% drop in Alibaba Group Holding, which scrapped plans to list its $11 billion cloud unit as a fight between the US and China for technological dominance escalates. 

Key events this week:

• US housing starts, Friday
• US Congress faces a midnight deadline to pass a federal spending measure, Friday
• ECB President Christine Lagarde speaks, Friday
• Chicago Fed President Austan Goolsbee, Boston Fed President Susan Collins and San Francisco Fed President Mary Daly speak, Friday

Some of the main moves in markets: 

Stocks

• The Stoxx Europe 600 rose 0.9% as of 9:41 a.m. London time
• S&P 500 futures rose 0.2%
• Nasdaq 100 futures were little changed
• Futures on the Dow Jones Industrial Average rose 0.2%
• The MSCI Asia Pacific Index was little changed
• The MSCI Emerging Markets Index fell 0.6%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro was little changed at $1.0856
• The Japanese yen rose 0.7% to 149.61 per dollar
• The offshore yuan was little changed at 7.2417 per dollar
• The British pound was little changed at $1.2404

Cryptocurrencies

• Bitcoin rose 1% to $36,323.75
• Ether rose 1% to $1,974.75

Bonds

• The yield on 10-year Treasuries declined five basis points to 4.39%
• Germany’s 10-year yield declined six basis points to 2.53%
• Britain’s 10-year yield declined 10 basis points to 4.05%

Commodities

• Brent crude rose 0.7% to $77.95 a barrel
• Spot gold rose 0.6% to $1,992.17 an ounce

This story was produced with the assistance of Bloomberg Automation.