The global bond market lost steam after notching its longest winning run in 2024 as the European Central Bank (ECB) raised its inflation forecasts after delivering a widely expected rate cut.
In a historic move that saw the ECB slashing borrowing costs ahead of the Federal Reserve, officials led by President Christine Lagarde said that while the inflation outlook has improved “markedly,” they’ll “keep policy rates sufficiently restrictive for as long as necessary.” The remarks were enough to lift bond yields across the board, with Treasuries also joining the move as traders positioned for Friday’s US payrolls data.
“The ECB eased, but in order to get the votes, they had to agree to an increase in inflation expectations,” said Andrew Brenner at NatAlliance Securities. “So we are calling it a hawkish ease. And US Treasuries are back in the red. It does not change our view to take profits before the employment number tomorrow.”
US 10-year yields rose two basis points to 4.30%. The S&P 500 fluctuated. European shares held near a record high. The euro rose 0.1% and the yield on 10-year German bonds climbed four basis points to 2.55%.
To Mark Wall at Deutsche Bank AG, the immediate tone of the ECB decision was that of a “hawkish cut”.
“This is not a central bank in a rush to ease policy,” he noted.
Traders have escalated rate-cut bets in the past week, emboldened by a slew of softer-than-forecast US economic data, the Bank of Canada’s decision to ease monetary policy, and expectations that the ECB would be next to cut.
The enthusiasm for bonds will once again be tested as US non-farm payrolls data on Friday provide fresh clues on whether growth is cooling sufficiently in the world’s largest economy.
A survey conducted by 22V Research shows there’s no consensus over the market reaction to employment data — with 36% of the investors polled betting on a “risk-off” reaction, 33% saying “risk-on”, and 31% “negligible/mixed.”
The tally also highlighted the fact that investors are paying the most attention to Payrolls — not average hourly earnings, which is a reversal from recent surveys.
On the eve of the US payrolls report, Wall Street also waded through a slew of data. Jobless claims topped estimates, US labor costs increased by less than previously reported and the trade deficit widened.
Corporate Highlights:
Key events this week:
Some of the main moves in markets:
Stocks |
The S&P 500 Index gained 0.1% to 5,358.06 as of 11 a.m. New York time. |
The Dow Jones Industrial Average climbed 0.1% to 38,856.36. |
The Nasdaq Composite Index rose 0.1% to 17,202.59. |
The Stoxx Europe 600 Index jumped 0.7% to 524.64 |
The MSCI All-Country World Index increased 0.3% to 797.04 |
Currencies |
The Bloomberg Dollar Spot Index was little changed at 1,251.99. |
The euro rose 0.1% to $1.0877. |
The British pound dipped 0.1% to $1.2776. |
The Japanese yen weakened 0.1% to 156.23 per dollar. |
Bonds |
The yield on 10-year Treasuries rose two basis points to 4.30% |
Germany’s 10-year yield gained four basis points to 2.55%. |
Britain’s 10-year yield declined one basis point to 4.177%. |
Commodities |
The Bloomberg Commodity Index climbed 1% to 102.90. |
West Texas Intermediate crude rose 0.7% to $74.56 a barrel. |
Gold strengthened 0.4% to $2,363.92 an ounce. |
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