European Stocks Near Two-Year High; Bonds Stall: Markets Wrap

(Bloomberg) — European stocks hovered around the highest levels since January 2022 and US equity futures edged higher as investors position themselves for Federal Reserve interest-rate cuts next year. Gold traded near a record high struck earlier this month.

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The Stoxx Europe 600 index was little changed after erasing an early advance in thin holiday trading, on track for a gain of about 13% this year. Oil majors declined as crude prices retreated. Nasdaq 100 futures climbed 0.2% and S&P 500 contracts fluctuated following Wednesday’s gains on Wall Street.

Bonds dipped after Wednesday’s strong rally which saw yields on five- to 30-year Treasuries falling at least 10 basis points and Germany’s 10-year yield hitting a fresh 2023 low. The gains pushed one global measure of the bond market to the cusp of its best two-month rally on record.

Expectations of aggressive policy easing are getting front-loaded, said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “The ferocity of the bond market rally has really augmented the total returns for investors — there’s a feeling markets are signaling we’re heading half-way toward easy monetary policy again,” he said.

Gains in Asia were led by Chinese shares, which were headed for their best day in four months, boosted by a rotation into some of 2023’s worst-performing sectors. Stocks also rallied in Hong Kong, India and Australia.

A measure of global equities is on pace for its highest close since February 2022, up more than 15% from its October low, reflecting traders’ optimism for interest rate cuts next year. Traders have stepped up bets on Fed rate cuts as early as March, according to Fed swaps pricing. Jobs data later Thursday may give further clarity on the outlook for the economy and interest rates.

The gains in bonds were helped by bumper demand for five-year Treasury notes Wednesday, which followed strong appetite for a two-year auction the day before. Strong appetite for the notes is a sign investors want to lock in attractive yields prior to expected Fed cuts. The dollar dropped against all its Group-of-10 peers, with a gauge of the greenback on track for a fifth day of declines.

In Asia, the yen gained for the second day after Bank of Japan Governor Kazuo Ueda continued to prepare the ground for the nation’s first interest rate increase since 2007.

China’s CSI 300 Index is headed for the first weekly gain since early November, with technology and renewable energy stocks contributing the most to the rally Thursday.

Oil retreated amid signs of building US stockpiles. Bitcoin inched higher, trading above $43,000 amid renewed speculation that the US Securities and Exchange Commission is getting close to approving an exchange-traded fund investing directly in the biggest token.

Key events this week:

US wholesale inventories, initial jobless claims, Thursday
UK Nationwide house prices, Friday

Some of the main moves in markets:

Stocks

The Stoxx Europe 600 was unchanged as of 9:20 a.m. London time
S&P 500 futures were little changed
Nasdaq 100 futures rose 0.2%
Futures on the Dow Jones Industrial Average fell 0.1%
The MSCI Asia Pacific Index rose 1.2%
The MSCI Emerging Markets Index rose 1.2%

Currencies

The Bloomberg Dollar Spot Index fell 0.2%
The euro rose 0.1% to $1.1117
The Japanese yen rose 0.6% to 140.93 per dollar
The offshore yuan rose 0.5% to 7.1166 per dollar
The British pound was little changed at $1.2794

Cryptocurrencies

Bitcoin fell 0.9% to $42,995.95
Ether rose 1.2% to $2,388.21

Bonds

The yield on 10-year Treasuries advanced three basis points to 3.82%
Germany’s 10-year yield advanced three basis points to 1.92%
Britain’s 10-year yield advanced four basis points to 3.48%

Commodities

Brent crude fell 0.9% to $78.95 a barrel
Spot gold fell 0.2% to $2,073.51 an ounce

This story was produced with the assistance of Bloomberg Automation.

—With assistance from Chiranjivi Chakraborty and Richard Henderson.

(A previous version corrected first paragraph to show gold traded near a record)