European stocks rise on interest rate outlook: Markets Wrap

European stocks rose, tracking a record close for the S&P 500, on optimism about U.S. interest rate cuts after Federal Reserve Chairman Jerome Powell said inflation was returning to a downward trajectory.

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Politics remained firmly in the spotlight ahead of the U.K. election. In France, the benchmark CAC 40 index rose more than 1% as anti-National Rally parties tried to prevent Marine Le Pen’s far-right group from winning an absolute majority in the final round of legislative voting on Sunday. The pan-European Stoxx 600 index advanced 0.7%, led by technology stocks.

U.S. stock futures were steady ahead of a shorter-than-usual session due to the Fourth of July holiday. The S&P 500 closed above 5,500 for the first time on Tuesday, its 32nd record this year. The Nasdaq 100 also hit an all-time high with its first close above 20,000.

“We are in a situation where momentum in the US stock market remains strong, we are seeing lower inflation and the likelihood of a Fed rate cut in September is increasing, and all of this should be enough to keep the rally going,” said Jay Miller, chief market strategist at Zurich Insurance.

The MSCI World Index, which tracks developed and emerging markets, hit an all-time high, a testament to broadly positive sentiment toward stocks. The S&P 500 has added more than $16 trillion in value since its October 2022 closing low, helped by strong earnings, the AI ​​craze and expectations of lower interest rates.

Later Wednesday, investors will look to U.S. initial jobless claims and ADP employment data for more clues on the policy outlook. Fed Chair Powell acknowledged the central bank has made “significant progress” in bringing down inflation but stressed that officials need more evidence before cutting interest rates. The dollar and Treasuries were little changed.

Markets are also preparing for the U.S. jobs report, due out on Friday. Economists expect the report to show that employers added about 190,000 jobs in June, and that the unemployment rate will remain steady at 4%.

“There are clear signs of a slowdown in the US economy and labor markets and this should be confirmed by Friday's payrolls data, paving the way for the Fed to cut interest rates in September,” said Zurich Insurance's Miller.

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However, recent political turmoil in Europe has posed risks to the positive outlook for equity markets. As the early French election rattled markets, hedge funds sold the region’s stocks, data shows. The move was driven by liquidating long positions and adding short positions in roughly equal amounts, according to Goldman Sachs Group Inc.’s chief brokerage office.

Goldman Sachs said Europe suffered the biggest drop in overweight positions among global regions in June, reversing the buying trend seen in May. Funds cut most of their exposure to financial stocks, especially banks, with net selling in the sector hitting its highest level since November 2021.

Elsewhere, Asian stocks on Wednesday posted their longest winning streak since May. Japanese shares rose, with indexes now less than 1% from record highs.

Oil prices rose to their highest in nearly two months amid signs of a big draw in U.S. crude inventories. The American Petroleum Institute said crude inventories fell by 9.2 million barrels last week, according to people familiar with the data. If the official figures are confirmed later Wednesday, it would be the biggest drop in barrels since January.

Main events this week:

• Eurozone PMI and PPI for services, S&P World, Wednesday

• US Fed Minutes, ADP Employment Report, ISM Services Report, Factory Orders, Initial Jobless Claims, Durable Goods, Wednesday

• Federal Reserve Board Member John Williams Speaks Wednesday

• UK General Election, Thursday

• US Independence Day Holiday, Thursday

• Eurozone Retail Sales, Friday

• US jobs report, Friday

• Federal Reserve Board Member John Williams Speaks Friday

Some key movements in the markets:

Stores

• The Stoxx Europe 600 index was up 0.7% as of 10:26 a.m. London time.

• S&P 500 futures were little changed.

• Nasdaq 100 futures were little changed.

• Dow Jones Industrial Average futures rose 0.1%.

• MSCI Asia Pacific Index rose 0.7%

• The MSCI Emerging Markets Index rose 0.8%.

Currencies

• The Bloomberg Dollar Index was little changed.

• The euro rose 0.1% to $1.0760.

• The Japanese yen fell 0.2% to 161.82 yen per dollar.

• The offshore yuan was little changed at 7.3077 against the dollar.

• The pound was little changed at $1.2696.

Cryptocurrencies

• Bitcoin fell 2.3% to $60,499.41

• Ether fell 2.2% to $3,340.35.

Bonds

• The yield on the 10-year US Treasury note was little changed at 4.44%.

• The yield on the 10-year German bond rose by three basis points to 2.63%.

• The yield on the 10-year British bond fell by two basis points to 4.23%.

Goods

• Brent crude recorded little change

• Spot gold rose 0.6 percent to $2,343.36 an ounce.

This story was produced with the help of Bloomberg Automation.

–With assistance from Sagarika Jaisinghani and Winnie Hsu.

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