Bonds, stocks take breather after rate-repricing rally

bonds,-stocks-take-breather-after-rate-repricing-rally
Bonds, stocks take breather after rate-repricing rally

Stocks and sovereign bonds in European trading on Monday paused following recent rallies as markets factored in earlier rate cuts in the United States and Europe. This assumption will be tested by central bank speakers this week.

Bond markets have recovered as a result of a benign U.S. payrolls report and positive productivity numbers, indicating a cooling labor market that may eliminate the need for further rate increases from the Federal Reserve.

Futures markets now suggest a 90% chance that the Fed is finished raising rates, with an 86% chance that the first policy easing will occur as early as June. Additionally, markets imply an 80% probability that the European Central Bank (ECB) will cut rates by April, while the Bank of England (BoE) is expected to ease in August.

Benchmark U.S. 10-year yields experienced a significant drop of around 29 basis points last week, the largest weekly decline since March. However, the rally paused on Monday, with the 10-year yield slightly increasing to 4.599%, still significantly lower than mid-October’s high.

Samy Chaar, chief economist at Lombard Odier, expressed caution about the current situation, stating that while rate cuts may be warranted next year, the pendulum may have swung too far in favor of more-and-sooner cuts.

Central bankers, including Fed Chair Jerome Powell, will have the opportunity to share their views on this dovish outlook. At least nine Fed members, as well as speakers from the BoE and ECB, are scheduled to speak this week.

Australia’s central bank is an outlier, expected to resume raising rates at a policy meeting on Tuesday due to stubbornly high inflation. The Bank of Japan is also gradually tightening its policy, although progress towards its inflation target is still insufficient to end ultra-loose policy.

Lower borrowing costs continue to support shares, particularly in Asia, where markets missed out on the rally inspired by Friday’s U.S. jobs data. The MSCI’s broadest index of Asia-Pacific shares outside Japan gained 2.1% on Monday, contributing to MSCI’s world index’s sixth consecutive session of gains. European shares also opened positively on Monday, following their best week since March.

South Korea’s stock market stood out, climbing 5.66% as authorities re-imposed a ban on short-selling until mid-2024. S&P 500 futures and Nasdaq futures were both up around 0.2%.

The recent retreat in Treasury yields has weakened the dollar, with the dollar index reaching its lowest level since late September. The euro, on the other hand, has strengthened to its highest level in nearly two months. The drop in the dollar and yields has also supported gold prices, which remain close to a five-month peak.

Oil prices rose after a 6% decline last week, as Saudi Arabia and Russia confirmed their commitment to additional voluntary oil output cuts.

In the Middle East, Israel has rejected calls for a ceasefire in Gaza and is expected to intensify operations against Palestinian Islamist group Hamas.

Brent crude added 1.25% to $85.90 a barrel, while U.S. crude climbed to $81.62 per barrel.

Reporting by Wayne Cole and Alun John; Editing by Nick Macfie and Mark Potter

About News Team

Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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