Markets Wrap: Energy Pulls Stocks Down While Treasuries Remain Steady

(Bloomberg) — A decline in European stocks, primarily driven by a drop in energy stocks, occurred alongside a stabilisation of Treasuries following Monday’s surge, which was triggered by indications of the US economy slowing down.

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BP Plc and TotalEnergies SE experienced a decrease of at least 2.5% as a result of the continuous losses in crude oil prices, which pulled the Stoxx 600 Index down by 0.7%. Futures of US equity edged downwards. The 10-year yield in Germany reduced by four basis points, following increases in its US counterparts.

The health of the US economy is being weighed against the stronger expectations for the Federal Reserve to implement policy easing at an earlier stage. Factory activity in the US was revealed to have contracted at a faster rate on Monday, with output nearing stagnation and order levels dropping the most in almost two years. The 30-year yield remained close to 4.53%, the lowest since May 23.

“We maintain a long position on risky assets,” said Mohit Kumar, Jefferies’ chief strategist for Europe, in a note to clients. “Weaker data initially could be seen as beneficial for risky assets as it increases the likelihood of a Fed cut. However, at some point weak data should be considered bad news for risky assets, but we believe that point is still a few weeks or a couple of months away.”

On Tuesday, economists predict that job openings will decrease for the third consecutive month, while Friday’s payroll numbers are considered crucial for understanding the world’s top economy and interest rates.

Swap contracts connected to future Fed meetings continue to fully anticipate a quarter-point rate cut in December, with the chances of a move as early as September increasing to around 50% and November also having high probabilities.

In Europe, strong economic data and outspoken European Central Bank hawks are causing some analysts and investors to reconsider their expectations for rate cuts this year. While most economists still predict quarterly reductions following an initial move this week, some believe that persistent inflation, fast wage growth and surprisingly strong euro-zone output will limit easing.

Rate cuts and an improving corporate earnings outlook are expected to still benefit the region’s equities, according to Citigroup Inc. strategists led by Beata Manthey. If rates return to pre-global financial crisis levels — as anticipated by the bank’s economists — this would provide a longer-lasting tailwind for stocks, the Citi team suggests.

Asian equities had a mixed session. India was the focus, with the country’s stocks, currency and bonds all falling as preliminary ballot counting indicated a narrow win for the Bharatiya Janata Party led by Prime Minister Narendra Modi.

Corporate Highlights:

GameStop Corp. saw a significant increase as the Reddit account that sparked the meme-stock mania of 2021 revealed what seemed to be a $116 million stake in the video-game retailer.
Airbus SE is in talks to sell a large number of A330neo aircraft to China, discussions that have accelerated since the visit of Chinese President Xi Jinping to his French counterpart Emmanuel Macron last month.
JetBlue Airways Corp.’s sales performance for this quarter is expected to be somewhat better than previously estimated as the airline works to improve operations and take advantage of “healthy overall demand trends.”
Skydance Media plans to propose a $23 per share offer to Paramount Global’s voting stock investors as part of its merger plan with the film and TV giant, according to sources familiar with the matter.
Bill Ackman’s Pershing Square aims to collect $25 billion for a new closed-end fund targeting US retail investors, which would more than double the fee-earning assets the company manages, according to individuals with direct knowledge of the plans.
A.P. Moller-Maersk A/S, a key indicator for global trade, has upgraded its full-year profit forecast, stating that the congestion in the Red Sea is having a larger than previously expected impact on the world’s supply lines, which is in turn driving up freight rates.