European equities extend year-end rally, bonds stall

BLOOMBERG

European stocks extended the rally seen across Asian markets and Wall Street, as investors position themselves for Federal Reserve interest-rate cuts next year. Gold traded near a record high struck earlier this month. The Stoxx Europe 600 index climbed 0.3% after a gauge of Asian equities rallied for the fourth straight session.
The European benchmark is at the highest level since January 2022 after adding 13% this year. US stock futures also pointed to an extension of earlier gains on Wall Street. Bonds dipped after the 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 towards 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 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, 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 on Thursday. Gold neared a record, while oil steadied 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.