Bond rally continues as traders eye end of rate hikes

Bonds rallied for a second day as traders bet global central banks are nearing the end of an aggressive streak of rate increases.

European equities found firmer footing Tuesday after starting the week with the steepest losses in more than a week, with healthcare and financial services leading a modest gain in the Stoxx 600 index. Italian bonds led a rally across the Eurozone. 

Hopes are rising that a reprieve in inflation will pave the way for central banks to step back from a tightening regime that’s spurred the fastest pace of hikes in four decades. Consumer price index reports are due out of the Eurozone and UK Wednesday. Last week’s data showed US price pressures cooled more than economists had forecast.

European Central Bank Governing Council member Ignazio Visco said inflation may come down more quickly as lower commodity prices start to trickle through the economy. “The ECB projects that by the end of 2025 there will be 2% — my impression is that it might be faster,” Visco told Bloomberg Television on Tuesday.

Meanwhile, US futures steadied ahead of bank earnings. Morgan Stanley and Bank of America Corp. may temper early optimism with more downbeat results due before US trading opens, according to Bloomberg Intelligence.  

Investors will also be watching US retail sales due later on Tuesday for any read on the health of the consumer. The median economist forecast indicates spending will remain robust.

Treasury Secretary Janet Yellen said the nation is on a “good path” to bringing down inflation without a major weakening in the jobs picture.

Bets on longer-term bonds risk may start to become more popular as the Fed nears the endpoint for the cycle, BMO Capital Markets strategist Ian Lyngen wrote in a note.

Stocks in Asia retreated as China’s sluggish economic recovery triggered growth forecast cuts, with shares in Hong Kong the worst performers in the region.  

China’s disappointing economic figures released Monday prompted economists at several major banks to downgrade outlooks. JPMorgan Chase & Co., Morgan Stanley and Citigroup Inc. cut their growth projections for this year to 5%, putting Beijing’s official gross domestic product target of the same figure at risk.

Elsewhere, oil halted a two-day loss as concerns over the state of China’s economy were offset by Russia’s plans to cut crude exports. Gold edged higher.

Key events this week:

• US retail sales, industrial production, business inventories, cross-border investment, Tuesday
• Eurozone, UK CPI, Wednesday
• US housing starts, Wednesday
• China loan prime rates, Thursday
• US initial jobless claims, existing home sales, Conf. Board leading index, Thursday
• Japan CPI, Friday

Some of the main moves in markets:  

Stocks

• The Stoxx Europe 600 was little changed as of 8:32 a.m. London time
• S&P 500 futures were little changed
• Nasdaq 100 futures were little changed
• Futures on the Dow Jones Industrial Average were little changed
• The MSCI Asia Pacific Index was little changed
• The MSCI Emerging Markets Index fell 0.5%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro rose 0.3% to $1.1275
• The Japanese yen rose 0.3% to 138.30 per dollar
• The offshore yuan was little changed at 7.1777 per dollar
• The British pound rose 0.3% to $1.3106

Cryptocurrencies

• Bitcoin rose 0.3% to $30,012.71
• Ether rose 0.6% to $1,901.22

Bonds

• The yield on 10-year Treasuries declined four basis points to 3.77%
• Germany’s 10-year yield declined three basis points to 2.45%
• Britain’s 10-year yield declined four basis points to 4.39%

Commodities

• Brent crude fell 0.2% to $78.33 a barrel
• Spot gold rose 0.5% to $1,964.06 an ounce

This story was produced with the assistance of Bloomberg Automation.