(Bloomberg) — European stocks fell after policymakers said they needed more evidence that price pressures were under control, even as the latest data showed inflation in the euro region eased slightly.
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The benchmark Stoxx Europe 600 index fell about 0.5%, led by insurers and automakers. France’s CAC 40 erased most of Monday’s gains as the country prepares for a runoff election, with the outlook for French assets still uncertain. U.S. stock futures fell.
Euro zone consumer prices slowed in line with economists’ estimates in June, although the core measure, which excludes volatile items such as food and energy, was unexpectedly unchanged.
After cutting interest rates by a quarter-point in June, policymakers are now determining whether inflation is moderating enough to allow further cuts. At the ECB’s annual retreat this week in Sintra, Portugal, President Christine Lagarde and chief economist Philip Lane said there was still no convincing evidence that the threat had passed.
“Lagarde has conveyed the message very well,” says Frederique Carrier, head of investment strategy at RBC Wealth Management. “We do not expect a change in July, but rather in September and December.”
The rally in European stock markets has stalled in recent weeks due to political turmoil following the call for early elections in France. The first round of parliamentary elections narrowed the possible results to two, which portends prolonged uncertainty for investors. The second round of elections is scheduled for Sunday.
“We expect France to become more difficult to govern and there will be fewer reforms, which is not positive,” Carrier said.
Among individual stocks, food services company Sodexo SA shares fell and its third-quarter revenue missed estimates. Tire maker Michelin fell in Paris, with analysts citing a premarket call Monday.
HelloFresh SE shares rose after JPMorgan said data indicated a stabilization in the company’s key meal-kit business in North America. Siemens Energy AG rose as much as 4.3% after the Financial Times reported the company plans to hire more than 10,000 new employees in its networking business.
Meanwhile, the 10-year Treasury yield pared some of Monday’s rise on speculation that a Donald Trump presidency would lead to larger fiscal deficits and higher inflation in the United States. A gauge of the dollar rose for a second day.
“The dollar is being supported by rising US Treasury yields overnight,” said David Forrester, senior strategist at Credit Agricole CIB. “The irony is that it is investors’ concerns about US fiscal sustainability that are driving US Treasury yields higher.”
This year, Treasuries have seen sharp ups and downs as traders have oscillated between buying bonds amid signs of cooling U.S. prices and fears of higher rates for longer. Yields on five-year bonds have risen more than 20 basis points from a low of around 4.20% just under three weeks ago.
After last week’s debate hurt Joe Biden’s chances of winning reelection, Wall Street strategists including those at Goldman Sachs Group Inc., Morgan Stanley and Barclays Plc. are taking a fresh look at how a Trump victory could affect the bond market. They’re urging clients to position for persistent inflation and higher long-term yields.
Meanwhile, JPMorgan Chase & Co. strategists said now is the time to pocket Treasury gains.
Federal Reserve Chair Jerome Powell’s speech at an ECB forum in Portugal may offer further clues on the outlook for monetary policy. The ECB’s Lagarde is also scheduled to speak. Traders will also be keeping an eye on U.S. job openings data due later on Tuesday.
Asian stocks gain ground
Asian stocks rose, led by gains in Japan and Hong Kong. The MSCI AC Asia Pacific index hit its highest level since late May amid a rally in Hong Kong-listed shares of electric vehicle makers and property companies.
Japan’s benchmark equity index neared a record high, supported by gains in financial stocks on the prospect of higher interest rates. Domestic 10-year yields continued their rise above 1% on bets the central bank will raise policy rates.
In China, pessimism about the domestic economy has led to a surge in demand for government debt. The central bank said it will borrow government bonds from primary financial intermediaries, a sign it may be considering selling securities to cool the bullish trend.
China’s benchmark bond yields fell to a record low on Monday as investors worry about long-term economic growth.
In the commodities sector, oil traded near a two-month high amid escalating tensions in the Middle East and concerns about the rapid start of the Atlantic hurricane season. Iron ore held near its highest closing level in about a month. Gold was little changed.
Key events of this week:
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Job openings in the United States, Tuesday
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Jerome Powell and Christine Lagarde speak at the ECB forum in Portugal, Tuesday
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China Caixin Services PMI, Wednesday
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S&P Global Eurozone Services PMI and PPI, Wednesday
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US Federal Reserve Minutes, ADP Employment, ISM Services, Factory Orders, Initial Jobless Claims, Durable Goods, Wednesday
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Fed’s John Williams speaks Wednesday
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UK General Election, Thursday
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Thursday, holiday for the United States Independence Day
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Eurozone retail sales, Friday
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US employment report, Friday
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Fed’s John Williams speaks on Friday
Some of the main movements in the markets:
Stocks
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The Stoxx Europe 600 was down 0.5% as of 10:19 a.m. London time.
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S&P 500 futures fell 0.4%
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Nasdaq 100 futures fell 0.5%
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Dow Jones Industrial Average futures fell 0.3%
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MSCI Asia Pacific Index little changed
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MSCI emerging markets index fell 0.6%
Coins
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The Bloomberg Dollar Spot Index rose 0.1%
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The euro fell 0.2% to $1.0717
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The Japanese yen was virtually unchanged at 161.58 per dollar.
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The offshore yuan was unchanged at 7.3072 per dollar.
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Sterling fell 0.2% to $1.2631
CRYPTOCURRENCIES
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Bitcoin fell 1% to $62,607.58
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Ether fell 0.6% to $3,441.5
Captivity
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The yield on the 10-year Treasury note was virtually unchanged at 4.46%.
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The yield on 10-year German bonds remained virtually unchanged at 2.60%.
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The yield on 10-year British bonds fell two basis points to 4.26%.
Raw Materials
This story was produced with assistance from Bloomberg Automation.
–With assistance from Michael Msika, Sagarika Jaisinghani and Aya Wagatsuma.
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