(Bloomberg) — European stocks ticked higher as a recovery in China helped offset a growing realization that policy makers are likely to stay hawkish for the coming months.
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The Stoxx Europe 600 Index added 0.2%, with miners and consumer products leading the gains, while real estate dropped. Futures for the S&P 500 and Nasdaq 100 erased earlier losses and climbed following data showing China’s economy bouncing back as it lifted Covid restrictions. An Asian equity benchmark advanced by the most since mid January, supported by a surge of 4% in Hong Kong’s benchmark index.
German government bonds extended a slump after hot inflation data caused a reassessment of rate expectations, picking up a theme that has dominated trading in a month where the Federal Reserve signalled its intention to ratchet rates higher than the market had been anticipating.
Wednesday’s equity rebound contrasts with February’s downdraft, where investors lost about 2.5% each in Treasuries and the S&P 500 Index as a re-pricing of peak US rates sparked a selloff in just about every risk asset.
Read: Bulls Walloped in All-Asset Downdraft Reversing New Year’s Binge
Bond traders no longer view the odds of a Fed rate cut this year as better than-even, a shift from what they were expecting just a month ago. Market expectations also see the European Central Bank raising rates through February 2024, with a 4% ECB terminal rate fully priced.
“For the Fed, they want to make sure that they increase rates and do their job,” Mary Nicola, multi-asset portfolio manager at PineBridge Investments, said on Bloomberg Television. “They could continue to hike but they can continue to hike until it starts hurting and we start seeing cracks in the labor market and that’s where it just becomes a real predicament for the Fed.”
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Key events this week:
Eurozone S&P Global Eurozone Manufacturing PMI, Wednesday
US construction spending, ISM Manufacturing, light vehicle sales, Wednesday
Eurozone CPI, unemployment, Thursday
US initial jobless claims, Thursday
Eurozone S&P Global…
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