(Bloomberg) — European stocks were set for a lukewarm start as traders recalibrated their bets on the Federal Reserve’s easing. US Treasuries were steady after slumping in the previous session.
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The Euro Stoxx 50 futures inched higher, while contracts for US stocks slipped in Asian trading. The S&P 500 fell 0.2% Monday while the Nasdaq rose by the same margin.
Hong Kong stocks outperformed in an otherwise range-bound Asian market. Shares jumped after a two-session holiday, tracking Monday’s gains in their mainland counterparts. A rally in Chinese shares took a breather.
“I strongly believe that the onshore and Hong Kong stock markets are already bottoming out and the rebound could continue into the second quarter,” said Dickie Wong, director of research at Kingston Securities Ltd. “The valuations are really cheap, positioning is still light, we just need more policy catalysts to boost the sentiment.”
Equity bulls in Asia appear to have hit a wall at the beginning of the second quarter after stocks recorded their best start to the year since 2019. Doubts over the quantum of rate cuts by the Fed and caution ahead of key economic data releases later this week are weighing on sentiment.
The yen held on to Monday’s losses, with the currency’s weakness increasing the risk that officials may intervene in the market.
In the bond market, Australian and New Zealand yields climbed, echoing moves in Treasuries. US bonds steadied in Asian trading after falling across the curve Monday — with 10-year yields rising over 10 basis points — as manufacturing unexpectedly expanded for the first time since September 2022 and input costs climbed.
Following the report, the amount of Fed easing priced into swap contracts for this year slid to around 65 basis points — less than forecast by policymakers.
While the market appears “content” to point toward the manufacturing release as the trigger for the move in Treasuries, there was already a bond selloff underway prior to the headlines, said Ian Lyngen and Vail Hartman at BMO Capital Markets.
“Monday’s price action in the futures space suggests the pendulum of sentiment in US rates may be shifting toward the hawkish direction — although it goes without saying there remains ample room for expectations to meaningfully shift as more data is revealed,” they noted.
The Institute for Supply Management’s manufacturing gauge rose to 50.3 last month. While barely above the level of 50 that separates expansion and contraction, it halted 16 straight months of shrinking activity. At the same time, the group’s index of prices paid rose to 55.8, the highest since July 2022.
Later this week, data is expected to show employment gains continued in March while wage growth moderated. Fed Chair Jerome Powell — who is set to speak Wednesday — said Friday that officials are awaiting more evidence prices are contained, adding that it wouldn’t be appropriate to lower rates until officials are sure inflation is in check.
In Australia, the central bank will switch to a new system for the implementation of monetary policy as passive quantitative tightening leads to a decline in reserves in the banking system, RBA Assistant Governor Christopher Kent said on Tuesday.
In commodities, oil traded near a five-month high with heightened geopolitical risks in the Middle East and tighter supply from Mexico helping to buoy prices. Gold was steady after hitting an all-time high in the previous session.
Key events this week:
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Eurozone S&P Global Manufacturing PMI, Tuesday
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US factory orders, light vehicle sales, JOLTS job openings, Tuesday
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Fed’s John Williams, Loretta Mester, Mary Daly and Michelle Bowman speak, Tuesday
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St. Louis Fed President Alberto Musalem takes office, Tuesday. He replaces James Bullard.
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China Caixin services PMI, Wednesday
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Eurozone CPI, unemployment, Wednesday
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Japan services PMI, Wednesday
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US ADP employment, ISM Services, Wednesday
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Fed Chair Jerome Powell speaks, Wednesday
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Fed’s Austan Goolsbee, Adriana Kugler and Michelle Bowman also speak, Wednesday
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Eurozone S&P Global Services PMI, PPI, Thursday
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US initial jobless claims, Challenger job cuts, Thursday
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Fed’s Loretta Mester, Alberto Musalem, Thomas Barkin, Patrick Harker, Austan Goolsbee speak, Thursday
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European Central Bank publishes account of March rate decision, Thursday
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Eurozone retail sales, Friday
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US unemployment, nonfarm payrolls, Friday
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Fed’s Michelle Bowman, Thomas Barkin and Lorie Logan speak, Friday
Some of the key moves in markets:
Stocks
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S&P 500 futures fell 0.1% as of 3:19 p.m. Tokyo time
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Nasdaq 100 futures declined 0.1%
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S&P/ASX 200 futures rose 0.1%
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Hong Kong’s Hang Seng rose 2.2%
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The Shanghai Composite fell 0.2%
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Euro Stoxx 50 futures were little changed
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro fell 0.1% to $1.0729
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The Japanese yen was little changed at 151.74 per dollar
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The offshore yuan was little changed at 7.2636 per dollar
Cryptocurrencies
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Bitcoin fell 4% to $66,973.7
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Ether fell 3.4% to $3,378.51
Bonds
Commodities
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West Texas Intermediate crude rose 0.6% to $84.25 a barrel
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Spot gold rose 0.2% to $2,255.31 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Charlotte Yang.
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