(Bloomberg) — European stocks rallied after dovish comments from Federal Reserve officials and the prospect of more economic stimulus from China brought some risk-on sentiment back to markets as investors continue to assess the potential impact of the Israel-Hamas conflict.
Most read by Bloomberg
The Stoxx Europe 600 index rose 1.5%, heading for its best day in a month, with all industry sectors in the green. Miners led the rise as copper and nickel prices rose after Bloomberg reported that China was preparing to launch a new round of measures to support its economy. Anglo American Plc rose more than 5%, while Glencore Plc, Rio Tinto Plc and ArcelorMittal each rose more than 3%.
Treasury bonds jumped, keeping pace with the rally in global government bonds on Monday as cash trading closed in the United States. The yield on the policy-sensitive two-year Treasury note fell the most since late August, while the benchmark 10-year Treasury note had its best day since March. U.S. stock futures rose and the dollar extended its losing streak to a fifth day.
Late last week, traders increased their bets on another Fed rate hike after U.S. employment unexpectedly rose in September. However, that narrative changed on Monday as central bank officials curbed speculation. Fed Vice Chairman Philip Jefferson said officials could “tread cautiously” after the recent rise in Treasury yields, and Fed Bank of Dallas President Lorie Logan said the rise in long-term interest rates may reduce the need could mean further tightening. Another list of Fed speakers today could add to the picture.
“Recent comments from Fed spokespeople have had a clear risk impact on the market,” said Benjamin Melman, global chief investment officer at Edmond de Rothschild Asset Management. “The tone has changed significantly.”
The story goes on
According to Bloomberg, China is considering increasing its budget deficit for 2023 to help the economy meet the government’s annual growth target. Policymakers are considering issuing at least 1 trillion yuan ($137 billion) in additional government debt for infrastructure spending such as water conservation projects.
However, an escalation of tensions in the Middle East remains a risk for markets as Israel mobilizes its forces near Gaza and questions arise over Iran’s role in the bloody incursion. The latest conflict comes at a time of ongoing geopolitical concerns, with markets also facing a period of weaker global economic growth.
“It is perhaps a little surprising that markets have recovered so quickly and strongly,” said Craig Erlam, senior market analyst at Oanda. “Hamas’ attacks in Israel have caused uncertainty across the Middle East and investors will undoubtedly continue to monitor the situation very closely. Given Monday’s Fed comments and its contribution to the market turnaround, the focus today will be on further appearances.”
The Fed’s Raphael Bostic, Christopher Waller, Neel Kashkari and Mary Daly are scheduled to speak on Tuesday.
Another risk to U.S. stocks could come from fiscal constraints at a time when the Fed is still battling high inflation, according to Morgan Stanley’s Michael Wilson. The strategist – one of the most prominent bearish voices on Wall Street – said while the US government narrowly avoided a shutdown last week, “the lack of a resilient long-term structure that supports fiscal discipline” could have an impact on financial markets.
Important events this week:
US wholesale inventories, Tuesday
The Fed’s Raphael Bostic, Christopher Waller, Neel Kashkari and Mary Daly will speak at separate events on Tuesday
Germany CPI, Wednesday
Meeting of NATO defense ministers on Wednesday in Brussels
Russian Energy Week in Moscow with representatives of OPEC members and others, Wednesday
US PPI, Wednesday
Minutes of the Fed’s September monetary policy meeting, Wednesday
The Fed’s Michelle Bowman and Raphael Bostic will speak at separate events on Wednesday
Japanese machinery orders, PPI, Thursday
Asahi Noguchi of the Bank of Japan speaks on Thursday
British industrial production, Thursday
US initial jobless claims, CPI, Thursday
The European Central Bank will publish a report on its September monetary policy meeting on Thursday
The Fed’s Raphael Bostic speaks on Thursday
China CPI, PPI, trade, Friday
Eurozone industrial production, Friday
University of Michigan Consumer Sentiment, Friday
Citigroup, JPMorgan, Wells Fargo and BlackRock’s results as the quarterly reporting season begins on Friday
The G20 finance ministers and central bankers will meet on Friday at the IMF meeting
ECB President Christine Lagarde and IMF Managing Director Kristalina Georgieva speak at the IMF panel on Friday
The Fed’s Patrick Harker speaks on Friday
Some of the key moves in the markets:
Shares
The Stoxx Europe 600 rose 1.5% at 10:47 a.m. London time
S&P 500 futures rose 0.2%
Nasdaq 100 futures rose 0.2%
Futures on the Dow Jones Industrial Average rose 0.2%
The MSCI Asia Pacific Index rose 1.1%
The MSCI Emerging Markets Index rose 0.7%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro rose 0.4% to $1.0604
The Japanese yen fell 0.3% to 148.92 per dollar
The offshore yuan was little changed at 7.2976 per dollar
The British pound rose 0.3% to $1.2273
Cryptocurrencies
Bitcoin rose 0.3% to $27,663.76
Ether rose 0.8% to $1,589.09
Tie up
The 10-year Treasury yield fell 13 basis points to 4.67%
The 10-year German government bond yield rose three basis points to 2.80%
The 10-year UK government bond yield rose one basis point to 4.49%
raw materials
Brent crude fell 0.2% to $87.99 a barrel
Spot gold fell 0.2% to $1,857.93 an ounce
This story was produced with support from Bloomberg Automation.
– With support from Julien Ponthus, Tassia Sipahutar and Michael Msika.
Most read by Bloomberg Businessweek
©2023 Bloomberg LP