European stocks struggled for traction in thin trading after a European Central Bank official warned that policy will have to stay restrictive all year.
The Stoxx Europe 600 index was little changed. Turnover was less than half the 20-day average for the time of day, with UK and US markets closed for holidays. American equity futures and the dollar were steady.
The European Central Bank is on track to start cutting interest rates next month, but will have to keep policy in restrictive territory through 2024, Chief Economist Philip Lane told the Financial Times. In a speech on Monday, he added that the ECB will “continue to follow a data-dependent and meeting-by-meeting approach” in determining the appropriate level for interest rates.
A rate cut in June has been widely telegraphed, but subsequent steps are less clear given uncertainty over wage growth and factors like the fighting in the Middle East. Data this week may show headline inflation in the euro region ticked up in May. Markets are rethinking the three reductions they’d been betting on in 2024 as recently as last week. They now fully price just two.
“European inflation is back,” though the May spike may be temporary, Credit Agricole SA strategists led by Jean-François Paren wrote in a note. “This does not call the June cut into question but adds risk of de-pricing additional cuts later.”
Among individual movers in Europe, EFG International AG rallied 4.6% following a Bloomberg news report after the market close Friday that Julius Baer Group Ltd. is exploring a potential acquisition of its rival Swiss private bank. Julius Baer slipped 0.8%.
The MSCI Asia Pacific index posted its biggest gain since May 16, led by stock gauges in Hong Kong, China, and Japan.
A swath of inflation prints from Australia to Japan, the euro region and the US is due this week as traders finesse bets on the outlook for monetary policy. The Federal Reserve’s favorite measure of underlying inflation is due on Friday and is expected to show modest relief. Fed Chair Jerome Powell has stressed the need for more evidence that inflation is on a path to the 2% goal before easing policy.
John Williams, Lisa Cook, Neel Kashkari and Lorie Logan are among the US central bankers due to speak this week.
Trading of cash Treasuries was closed. The “T+1” rule that has the potential to cause trouble for overseas investors will come into effect when traders return from the long weekend — making US equities settle in one day rather than two.
Meanwhile, gold edged higher, while iron ore and copper futures fell. Oil was little changed after its biggest weekly loss in four, with the focus on an OPEC+ supply meeting on Sunday and US demand at the start of the summer driving season.
Some key events this week:
- ECB’s Philip Lane speaks in Dublin on inflation, Monday
- IMF holds discussions with Ukrainian authorities to review economic policies as the country seeks to unlock next tranche of $2.2 billion in aid, Monday
- Cleveland Fed President Loretta Mester speaks at BOJ event in Tokyo; Minneapolis Fed President Neel Kashkari and ECB Governing Council member Klaas Knot address Barclays-CEPR International Monetary Policy forum, Tuesday
- South African election, the most significant since the end of apartheid, Wednesday
- Fed releases Beige Book economic survey, Wednesday
- South Africa rate decision, US initial jobless claims, GDP, wholesale inventories, Thursday
- New York Fed President John Williams speaks at the Economic Club of New York, Thursday
- GDP data published for Canada, Eurozone, Turkey, Friday
- Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 8:46 a.m. New York time
- Nasdaq 100 futures were unchanged
- Futures on the Dow Jones Industrial Average were little changed
- The Stoxx Europe 600 rose 0.1%
- The MSCI World Index rose 0.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0849
- The British pound rose 0.1% to $1.2753
- The Japanese yen was little changed at 156.84 per dollar
Cryptocurrencies
- Bitcoin fell 0.2% to $68,544.04
- Ether rose 1% to $3,898.85
Bonds
- The yield on 10-year Treasuries declined one basis point to 4.46%
- Germany’s 10-year yield declined four basis points to 2.54%
- Britain’s 10-year yield was little changed at 4.26%
Commodities
- West Texas Intermediate crude rose 0.8% to $78.32 a barrel
- Spot gold rose 0.6% to $2,347.84 an ounce
