European Stocks Open Higher as Investors Await US Inflation Data
European stocks opened higher on Monday, while world stocks remained steady at their highest level in over two years. Investors are eagerly awaiting U.S. inflation data, which is expected to provide clues about when the U.S. Federal Reserve might cut rates.
Last week, the S&P 500 crossed the 5,000-point mark for the first time ever, primarily driven by the strong performance of tech stocks. Despite recent increases in U.S. Treasury yields, world equities have been on an upward trajectory for three consecutive weeks. This trend is a result of investors lowering their expectations for how soon the Fed will cut rates.
With most major Asian markets closed for holidays, analysts predict a relatively calm day in the markets as traders await key economic data releases. U.S. inflation data is scheduled to be released on Tuesday, followed by British inflation data and euro zone GDP on Wednesday.
Kiran Ganesh, UBS multi-asset strategist, highlighted that market expectations for rate cuts have decreased. Currently, markets are pricing in fewer than five rate cuts in the U.S. this year, compared to six or seven expected at the beginning of the year. Ganesh stated that the equity market has not been significantly impacted by this shift in rate cut expectations due to stronger economic growth, which is beneficial for equities.
Strong U.S. jobs data in February resulted in a decrease in expectations for a Fed rate cut at the upcoming meeting in March. Currently, markets are indicating an 84.5% chance that rates will remain unchanged.
At 0857 GMT, the MSCI world equity index, tracking shares in 47 countries, remained flat for the day after reaching its highest level since January 2022 earlier in the session. The pan-European STOXX 600 index increased by 0.3%, maintaining its stability in February after a 1.4% gain in January. London’s FTSE 100 index was relatively unchanged, while the Germany DAX index rose by 0.2%.
Ganesh attributed the recent equity rally to a handful of companies in the tech sector, particularly those involved in artificial intelligence. He cautioned that a period of consolidation in the coming weeks or months would not be surprising. However, Ganesh remains optimistic about the long-term growth prospects of the AI trend.
During Monday’s session, the Japanese yen remained steady at 149.190 per dollar. The currency has weakened as expectations for U.S. rate cuts have diminished. Similarly, investors have decreased their expectations for rate cuts by the European Central Bank (ECB) following recent comments by two policymakers. They stated that the ECB would require more evidence of easing inflation before considering any rate cuts.
Euro zone government bond yields, which experienced a sharp increase last week, slightly declined on Monday. The benchmark German 10-year yield decreased by one basis point to 2.373%.
Meanwhile, oil prices dipped after Israel announced that it had “concluded” a series of strikes in southern Gaza. This news somewhat alleviated concerns about supply from the Middle East. Brent crude futures were down 0.5% at $81.82 per barrel, while West Texas Intermediate crude futures dropped 0.5% to $76.46 per barrel.
Gold prices also saw a slight decline, reaching $2,022.6 per ounce.
It is important to note that several markets in Asia, including China, Hong Kong, Japan, South Korea, Singapore, Taiwan, Vietnam, and Malaysia, were closed for holidays.
Analyst comment
Neutral news.
The market is expected to remain relatively calm as investors await key economic data releases, including U.S. inflation data. Market expectations for rate cuts have decreased, resulting in a stronger equity market. The recent equity rally has been driven by tech companies involved in artificial intelligence. A period of consolidation may occur in the coming weeks or months. The Japanese yen and euro zone government bond yields have been impacted by decreased expectations for rate cuts. Oil prices dipped after Israel’s announcement regarding strikes in Gaza. Gold prices saw a slight decline.
