European bonds fall after German inflation data: Markets Wrap

(Bloomberg) — European bonds slipped and stocks wavered after the latest data suggested inflation may not yet be fully on the retreat in the euro area.

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Germany’s 10-year yield jumped as much as five basis points to 2.56% after the consumer price index in the bellwether state of North Rhine-Westphalia rose in August. Subsequent reports showed prices also quickened in two other states, while easing in two regions. Spanish inflation also accelerated.

The Stoxx Europe 600 was little changed. Among individual movers, Prudential Plc climbed more than 3% after posting a rise in new business profit. Orsted A/S plunged as much as 18% after the Danish power generator forecast potential impairments of up to $2.3 billion relating to its US portfolio.

The German and Spanish inflation data muddied the water for European policy makers after unexpectedly soft jobs and consumer-confidence readings in the US on Tuesday raised hopes the Federal Reserve may be nearing the end of its tightening cycle. North Rhine-Westphalia is the first German state to report August inflation readings and can often be a signal of the trend in the overall figure, which the German statistics office will release later today.

US equity futures were flat following a jump in the S&P 500 by the most since June on Tuesday after the economic data triggered lower wagers in swap contracts for a Fed hike in 2023, and a greater chance of a policy pivot in the first half of 2024. Traders also brought forward bets on the expected start of rate cuts to June from July of next year. Treasury yields ticked higher and a gauge of the dollar was steady.

“Markets have swung from narrative to narrative with the soft landing one winning out handsomely yesterday, or as a minimum the narrative that the Fed is more likely than not to be done hiking,” said Jim Reid, a strategist at Deutsche Bank AG. “Although with two whole days left of this choppy month, there’s plenty of time for that to change again.”

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Investors will be monitoring data on US economic growth later Wednesday to further ascertain the economy’s resilience amid high interest rates. Consumer confidence from the euro zone is also due.

In Asia, the MSCI Asia Pacific Index came off its highs as the strong rally in Chinese equity markets gradually evaporated. Benchmarks had earlier rallied, with the Hang Seng Index rising as much as 1.4%, after Chinese state-owned lenders were reported to prepare to reduce rates on the majority of outstanding mortgages, as well as on deposits.

“These little piecemeal policy shifts are probably very good in the short term for sentiment, but they don’t necessarily create this sort of surge in terms of the local economy,” Dwyfor Evans, head of APAC macro strategy at State Street Global Markets, said on Bloomberg Television. “There are still bigger issues at play here that I think are holding investors back still at this particular point.”

Australian stocks continued to outperform the region after a monthly inflation gauge eased more than expected, bolstering the case for the central bank to extend a pause in tightening at next week’s policy meeting.

Elsewhere, the crypto space traded lower after Bitcoin jumped more than 6% in the previous session as a US court ruling potentially paved the way for the country’s first Bitcoin exchange-traded fund.

In commodities, West Texas Intermediate rose for a fifth day, set to match the winning streak last seen in March, on signs of tighter market. Gold steadied after rising to the highest since early August on easing Fed rate hike bets.

Key events this week:

• Eurozone economic confidence, consumer confidence, Wednesday

• US GDP, wholesale inventories, pending home sales, Wednesday

• China manufacturing PMI, non-manufacturing PMI, Thursday

• Japan industrial production, retail sales, Thursday

• Eurozone CPI, unemployment, Thursday

• ECB publishes account of July monetary policy meeting, Thursday

• US personal spending and income, initial jobless claims, Thursday

• China Caixin manufacturing PMI, Friday

• Eurozone S&P Global Eurozone Manufacturing PMI, Friday

• South African central bank governor Lesetja Kganyago, Atlanta Fed President Raphael Bostic, BOE’s Huw Pill, IMF’s Gita Gopinath on panel at the South African Reserve Bank conference, Friday

• Boston Fed President Susan Collins speaks at virtual event, Friday

• US unemployment, nonfarm payrolls, light vehicle sales, ISM manufacturing, construction spending, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.1% as of 9:08 a.m. London time

• S&P 500 futures were little changed

• Nasdaq 100 futures fell 0.1%

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific Index rose 0.3%

• The MSCI Emerging Markets Index rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro fell 0.2% to $1.0863

• The Japanese yen fell 0.4% to 146.47 per dollar

• The offshore yuan fell 0.3% to 7.3025 per dollar

• The British pound was little changed at $1.2637

Cryptocurrencies

• Bitcoin fell 0.6% to $27,416.63

• Ether fell 0.6% to $1,716.16

Bonds

• The yield on 10-year Treasuries advanced one basis point to 4.13%

• Germany’s 10-year yield advanced four basis points to 2.55%

• Britain’s 10-year yield advanced two basis points to 4.44%

Commodities

This story was produced with the assistance of Bloomberg Automation.

—With assistance from Brett Miller and Sagarika Jaisinghani.

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