Following the unexpected acceleration of inflation in the eurozone, German government bonds took a hit, while stocks saw slight fluctuations. This development may limit the prospects for cutting interest rates.
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Investors are now shifting their focus to the Federal Reserve’s favored gauge of price growth, set to be released later today.
After data from Europe indicated a 2.6% annual rise in consumer prices in May, ten-year bund yields climbed five basis points. Traders continue to hold their positions for a rate cut in the upcoming European Central Bank meeting next week, but bets on further easing have been lowered. The Stoxx 600 remained relatively stable, while US equity contracts saw a slight dip.
Officials from the ECB caution that inflation’s trajectory could be inconsistent. The core PCE deflator, a favored tool by the Fed for tracking inflation, likely slowed to its slowest monthly rate this year in April.
Stock increases were propelled by a surge in tech and Federal Reserve Chairman Jerome Powell’s dovish stance on rates at the beginning of May. However, this optimism has seen a decline throughout the month, and today’s data might rekindle hopes for easing if signs of inflation returning to target are observed.
Global Bond Markets Experience Uncertainty as Rate Cut Hopes Dim
In emerging markets, the South African rand is leading in drops after a more than 3% decrease over three days. Investors are anticipating the final results of the country’s elections and are concerned about the potential combinations a coalition government might take, and whether it will be market-friendly.
South African Markets Grapple with Uncertainty as Coalition Era Begins
Trump Found Guilty
In other news, a jury convicted Donald Trump on all 34 charges of falsifying business records in his hush-money trial, making him the first ex-US president to be criminally convicted. The conviction, ahead of his sentencing on July 11, poses significant legal and political challenges as he faces off against President Joe Biden in November as the likely Republican nominee.
Trump Media & Technology Group’s shares dipped 12% in after-hours trading on Thursday.
According to Paresh Upadhyaya, director of fixed income and currency strategy at Amundi Asset Management in Boston, “The markets had somewhat factored in a guilty verdict. However, this guilty verdict could potentially shift the momentum from Trump to Biden, which could have a larger impact on the markets.”
Key events this week include:
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Eurozone CPI, Friday
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US consumer income, spending, PCE deflator, Friday
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Speech by Fed’s Raphael Bostic, Friday
Main moves in markets:
Stocks
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Stoxx Europe 600 remained virtually unchanged at 10:26 a.m. London time
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S&P 500 futures dropped 0.2%
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Nasdaq 100 futures slipped 0.4%
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Dow Jones Industrial Average futures saw little movement
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MSCI Asia Pacific Index remained stable
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MSCI Emerging Markets Index dipped 0.7%
Currencies
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The Bloomberg Dollar Spot Index remained unchanged
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The euro remained stable at $1.0842
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The Japanese yen dipped 0.3% to 157.27 per dollar
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The offshore yuan dropped 0.1% to 7.2619 per dollar
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The British pound slipped 0.1% to $1.2713
Cryptocurrencies
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Bitcoin dipped 0.8% to $67,905.98
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Ether fell 0.2% to $3,731.82
Bonds
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The yield on 10-year Treasuries rose one basis point to 4.56%
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Germany’s 10-year yield rose four basis points to 2.70%
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Britain’s 10-year yield rose three basis points to 4.37%
Commodities
This report was produced with the help of Bloomberg Automation.
Assistance provided by Matthew Burgess, Carter Johnson, and Chiranjivi Chakraborty.
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