European stocks advance, dollar climbs as traders reduce bets on Fed easing – Markets – The Jakarta Post

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European stocks advance, dollar climbs as traders reduce bets on Fed easing – Markets – The Jakarta Post

European stocks were poised to outpace Wall Street on Friday, with shares of exporters in high demand as the continent’s major currencies fell against the dollar on bets the U.S. Federal Reserve would keep interest rates high.

Europe’s Stoxx stock index rose 1 percent in early trade Friday, as euro weakness flattered the domestic value of exporters’ dollar profits.

London’s FTSE 100 index was up 0.8 percent, boosted by global mining and oil stocks.

Futures markets were hinting that Wall Street’s S&P 500 stock index, which is on track for its second weekly decline, would open flat later in the day. MSCI’s all-country stock index held steady, heading for its second weekly decline after higher-than-expected consumer price data midweek forced traders to sharply pull back from their bets on a drop in American rates.

Money market prices imply that investors expect the Fed to cut its key rate by less than 50 basis points this year. U.S. interest rates are at a 23-year high, between 5.25 and 5.5 percent, and traders have started 2024 betting on a drop of around 150 basis points.

“The available data suggests that the U.S. economy, inflation in particular, is on a different path than the Fed envisions,” said Anshul Pradhan, an analyst at Barclays.

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“Investors are starting to wonder if the Fed will be able to cut rates this year.”

The dollar index held near a five-month high after gaining nearly 1 percent this week against a basket of its major peers. The Japanese yen hit a 34-year low of 153.34 per dollar as traders waited for signs that authorities in Tokyo might intervene to strengthen the struggling currency.

At the same time, the European Central Bank and Bank of England are expected to begin reversing their own historically aggressive monetary tightening efforts sooner, in a trend that has weighed on the euro and sterling this week.

The ECB clearly announced on Thursday that it would lower its main deposit rate, which was at a record low of 4% in June.

The euro hit a 5-month low of $1.0674 on Friday. Sterling, once a carry trade currency popular with speculators who believed the BoE would cut rates after the Fed, slipped to $1.2508, also a nearly five-month low.

By contrast, Fed officials said Thursday that there was no urgency to ease monetary policy. Boston Fed President Susan Collins said the strong economy and uneven decline in inflation weighed against a short-term rate cut.

Long-term U.S. Treasury yields traded at 4.576 percent on Friday, near a 5-month high, as debt prices fell. Investors in American public debt have been betting since the beginning of 2023 on gains linked to falling interest rates. But according to Bank of America, the 10-year annualized yield on Treasuries now stands at just 0.6%, a 65-year low.

European bond investors were less optimistic about ECB rate cuts on Friday than currency and stock traders. Economists also question whether the ECB will cut interest rates in June, but remain cautious about straying too far from Fed policy.

The yield on Germany’s interest-rate-sensitive two-year bonds was down 7 basis points on the day at 2.89 percent, but on track for its third weekly rise.

“Beyond June, the ECB is keeping its options open,” Deutsche Bank economists said in a note to clients. “The risk is towards less rapid easing by the ECB.”

Elsewhere, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1 percent.

Gold rose to a record high of $2,395.29, taking its gains this week to 2.74 percent.

Crude oil prices rose after Iran said it would retaliate for a suspected Israeli airstrike on its embassy in Syria.

Brent crude futures rose 0.8 percent to $90.43 a barrel, while U.S. West Texas Intermediate crude futures gained 0.9 percent to 85.79. dollars.

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