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European stocks and US futures retreated, while the dollar rose to a one-month high and bonds fell as the market digested the latest comments from central bank officials pushing back against bets on aggressive interest rate cuts. The Stoxx Europe 600 index headed for a five-week low, with retailers and banks leading the decline. Futures on the S&P 500 slipped 0.6%, while contracts on the more rate-sensitive Nasdaq 100 dropped as much as 0.9%. Ten-year yields and the policy-sensitive 2-year debt rose about six basis points each.
It’s too early to declare victory on inflation, European Central Bank Governing Council member Francois Villeroy de Galhau said in Davos, Switzerland, where he is attending the World Economic Forum. ECB Governing Council member Robert Holzmann indicated that cuts this year were not assured given lingering inflation and geopolitical risks. His sentiments echoed prior comments from ECB President Christine Lagarde warning that it’s too early to talk about trimming borrowing costs.
Economic data in the UK, however, supported the case for Bank of England rate cuts in the coming months, with wage growth cooling at one of the fastest paces on record. The pound weakened as much as 0.5% against the dollar. Meanwhile, Morgan Stanley and Goldman Sachs Group Inc are among the companies reporting results on Tuesday, and are expected to reveal the continued lull in investment banking activity as high borrowing costs, geopolitical tensions and recessionary risks dampen deal-making. Global benchmark Brent held around $78 a barrel.
The MSCI Asia Pacific Index slid 1.3%, halting a three-day rally, with Hang Seng Index headed for the worst day in about two months as property-sector funding plans hurt bank shares.
The Stoxx Europe 600 fell 0.7% in London. S&P 500 futures fell 0.6%. Nasdaq 100 futures fell 0.8%. Futures on the Dow Jones Industrial Average fell 0.5%. The MSCI Asia Pacific Index fell 1.3%. The MSCI Emerging Markets Index fell 1.1%. Bitcoin was little changed at $42,696.01. Ether was little changed at $2,521.41. The yield on 10-year Treasuries advanced five basis points to 3.99%. Germany’s 10-year yield was little changed at 2.23%.