Stocks, bonds fall as traders weigh monetary policy view

BLOOMBERG

European stocks fell along with bonds as traders weighed the outlook for monetary policy ahead of a raft of speeches by policy makers at the World Economic Forum in Davos this week.
The Stoxx Europe 600 index dropped 0.3%, with banks and carmakers leading the decline after data showed Germany’s economy contracted for the first time since the pandemic last year. Germany’s 10-year yield rose about four basis points. Among individual stock moves, Dassault Aviation SA slumped as much as 10% after the French aircraft maker reported a decline in 2023 jet orders. Grifols SA climbed more than 7% after the Spanish medical-technology company sought to dispel investors’ concerns over the completion of a deal in China.
European Central Bank (ECB) Chief Economist Philip Lane said in an interview published at the weekend that easing policy too early would be “self-defeating,” damping expectations of rapid rate cuts. Traders are still betting on 149 basis points of reductions this year, compared to 153. ECB Governing Council member Robert Holtzmann may add to the picture when he speaks at Davos on Monday.
“We expect further push-back against the current market pricing of rate cut expectations,” economists at Rand Merchant Bank in Johannesburg wrote in a note. “Ultimately, however, the market is likely to be steadfast in its view of aggressive policy easing to come during this year.” US equity-index futures were flat, with cash stock and Treasury markets closed on Monday for a public holiday. A gauge of the dollar was little changed. The MSCI Asia Pacific share index climbed for a third session after a surprise decline in US producer prices reinforced bets the Federal Reserve will lower borrowing costs in coming months.
Japanese stocks rose after both the Topix and the Nikkei 225 indexes climbed to 34-year highs last week amid inflows from overseas investors. Stocks also advanced in Taiwan after the Democratic Progressive Party won the presidential election and the more China-friendly Kuomintang gained too few seats to control the assembly. China’s CSI 300 Index swung between gains and losses amid speculation officials may lower the required reserve ratio after the People’s Bank of China unexpectedly left the rate on its one-year policy loans at 2.5% on Monday. That was contrary to expectations among economists that it would trim the so-called medium-term lending facility by 10 basis points.
Along with more US earnings reports, investors this week will be focused on inflation readings in Germany and the UK, as well as a swath of political leaders and officials including Chinese Premier Li Qiang attending the annual WEF at Davos, Switzerland.
The Stoxx Europe 600 fell 0.3% in London. S&P 500 futures fell 0.1%. Nasdaq 100 futures were little changed. Futures on the Dow Jones Industrial Average fell 0.2%. The MSCI Asia Pacific Index rose 0.1%. The MSCI Emerging Markets Index was little changed.
The Bloomberg Dollar Spot Index was little changed. The euro was little changed at $1.0954. The Japanese yen fell 0.4% to 145.52 per dollar. The offshore yuan was little changed at 7.1898 per dollar. The British pound fell 0.1% to $1.2738. Bitcoin rose 0.2% to $42,608.01. Ether fell 0.7% to $2,508.84.
The yield on 10-year Treasuries was little changed at 3.94%. Germany’s 10-year yield advanced four basis points to 2.22%. Britain’s 10-year yield advanced one basis point to 3.81%. Brent crude fell 0.3% to $78.07 a barrel. Spot gold rose 0.4% to $2,056.55 an ounce.