(Bloomberg) — The dollar slipped and US equities were set to rebound from the previous day’s setback, as investors remain convinced the Federal Reserve and other central banks will reduce interest rates next year.
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While Europe’s Stoxx 600 equity index dropped, tracking Wednesday’s weak Wall Street close, futures for the S&P 500 and the Nasdaq 100 rose more than 0.5%. They appear poised to recover from a bout of selling that saw both indexes notch their worst declines in weeks. Treasury 10-year yields, which have dropped more than 40 basis points this month, held just off five-month lows, while the dollar weakened against almost all its Group-of-10 peers.
Some market watchers blamed the previous day’s share pullback on so-called zero-day or ODTE options, noting that hefty “put” volumes likely led option holders to dump the underlying stocks. Bonds and stocks will resume their rally, many argue, as the spotlight returns to central banks and rate-cut wagers.
“If you look at tightening cycles through history, once the market buys into the belief that the Fed’s done, you do see a pretty sharp rally in bonds,” said Matt Stucky, portfolio manager at Northwestern Mutual Wealth Management.
Citigroup Inc. strategists advised buying into pullbacks, adding investors should “expect volatility ahead, but with an eventual Fed pivot as a north star.”
Philadelphia Fed President Patrick Harker added to the rate-cut conviction Wednesday, saying it’s important that interest rates move lower, though he cautioned the central bank should not move too fast and not “right away.”
Traders will watch out for fresh economic data, including US GDP and initial jobless claims figures due later Thursday, with the latter expected to have ticked up slightly from the previous week. Nike Inc.’s earnings should provide insights on the state of US consumers.
Friday brings UK GDP data, US consumer sentiment and so-called core personal-consumption expenditures price index — the Fed’s preferred inflation gauge.
Economic data need to show clearly that labor markets are weakening, according to Northwestern Mutual’s Stucky, who said investors may gone into “overdrive” in pricing Fed rate cuts as early as March. “The idea the Fed is going to cut in the absence of continued progress on inflation — it’s tough for me to, to sign off on that,” he added.
Among individual stock moves, Vodafone Group Plc jumped more than 2% in London after Bloomberg reported Swisscom AG is weighing an offer for the firm’s Italian business. In New York premarket trading, Micron Technologies Inc. advanced more than 6% after forecast-beating quarterly revenue, while Boeing Co. rose as China was said to approve the first delivery of a 787 jet since April 2021.
Crypto shares also rose as Bitcoin extended gains, having traded above $44,000 on Wednesday.
Earlier, mainland China shares posted their best day since early November after data showed signs of recovery in the country’s ailing property market.
In commodities, oil was stable after three days of gains as traders weigh surging US production against the ongoing threats of Houthi attacks on ships in one of the world’s most important waterways.
Key events this week:
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US GDP, initial jobless claims, Conf. Board leading index, Thursday
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Nike earnings, Thursday
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Japan inflation, Friday
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UK GDP, Friday
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US personal income and spending, new home sales, durable goods, University of Michigan consumer sentiment index, Friday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 0.4% as of 10:21 a.m. London time
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S&P 500 futures rose 0.5%
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Nasdaq 100 futures rose 0.6%
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Futures on the Dow Jones Industrial Average rose 0.4%
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The MSCI Asia Pacific Index fell 0.3%
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The MSCI Emerging Markets Index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro was little changed at $1.0946
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The Japanese yen rose 0.4% to 143.05 per dollar
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The offshore yuan was little changed at 7.1574 per dollar
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The British pound was little changed at $1.2635
Cryptocurrencies
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Bitcoin rose 0.8% to $43,809.76
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Ether rose 2.1% to $2,224.69
Bonds
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The yield on 10-year Treasuries advanced three basis points to 3.88%
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Germany’s 10-year yield was little changed at 1.97%
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Britain’s 10-year yield was little changed at 3.52%
Commodities
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Brent crude rose 0.2% to $79.86 a barrel
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Spot gold rose 0.2% to $2,035.78 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Chiranjivi Chakraborty.
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