European Stocks Slip as Fed Rate Bets Pushed Back: Markets Wrap

(Bloomberg) — European stocks slid Friday, playing catch-up with declines in the US and Asia, as traders pushed back expectations for the Federal Reserve’s first interest rate cut.

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The Stoxx Europe 600 benchmark fell 0.5%, on track for its first weekly retreat in three, with technology and financial stocks leading declines. Contracts for US stocks edged about 0.2% higher, after stronger-than-expected US business activity data sparked the biggest S&P 500 Index drop this month. Swaps now price the Fed to deliver its first rate cut in December, instead of November.

The change put the dollar on track for its biggest weekly gain since early April against a basket of peers, while rate-sensitive Treasury two-year yields traded just off the three-week highs hit on Thursday. Earlier in the week, minutes of the Fed’s May meeting showed policymakers were in no rush to cut rates, with some even seeing a need for more restrictive policy.

“The bigger picture is one of a US economy that is stronger than we would have expected at this juncture with the current level of interest rates,” Anders Faergemann, a portfolio manager at Pinebridge Investments, said. Market sentiment will stay firm as long as as Fed Chair Jerome Powell “signals rate cuts and eliminates any thoughts of rate hikes,” he said.

Investors are unlikely to place big bets either way before a long weekend in the US and UK, while there is also some trepidation that the shift to a faster settlement cycle in the US could trigger some failed trades after Wall Street returns from Monday’s holiday.

Among individual stock movers, DS Smith Plc fell as much as 4.2% in London amid uncertainty over International Paper Co.’s plan to acquire the UK packaging company. In New York premarket trading, chip stocks Micron Technology Inc. and Microchip Technology Inc. made gains, though Nvidia Corp. slipped after blockbuster quarterly results propelled it to new record highs.

In commodities, oil held near its lowest level in over three months, amid concerns over demand at the upcoming Memorial Day…

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