European stock markets saw a slight uptick on Monday as investors shifted their focus to the upcoming central bank meetings and economic data releases while keeping an eye on interest rate developments.
Investors are eagerly anticipating the outcomes of central bank meetings scheduled for the week, including the Bank of Japan (BOJ) on Tuesday, the U.S. Federal Reserve on Wednesday, and the Bank of England (BoE) on Thursday. Additionally, they are closely monitoring Chinese manufacturing data set to be released on Tuesday and crucial U.S. job data on Friday. These events will be carefully scrutinized for any signals regarding the central banks’ efforts to combat inflation and their potential return to monetary policy easing.
The earnings season continues, with notable companies such as Apple (NASDAQ:AAPL), Airbnb, McDonald’s (NYSE:MCD), Moderna (NASDAQ:MRNA), and Eli Lilly & Co (NYSE:LLY) among those reporting this week. So far, results have fallen short of expectations, contributing to the S&P 500’s recent dip into correction territory.
As of 0834 GMT, the MSCI World Equity Index remained relatively stable, edging up 0.3% for the day but still lingering near its lowest point since late March.
Asian stock markets opened with subdued performance, with MSCI’s broadest index of Asia-Pacific shares outside Japan inching up by just 0.1%. Last week, it reached a one-year low.
In contrast, Europe’s STOXX 600 registered a 0.7% increase, while London’s FTSE 100 climbed by 0.8%.
Market participants are seeking “confirmation of the peak rate policy by central banks and any indication that might lead to thinking that perhaps central banks will be in a position to cut (rates) by the middle of next year,” explained Samy Chaar, chief economist at Lombard Odier.
Japan’s Nikkei experienced a 0.95% decline amid speculations that the BOJ might adjust its yield curve control policy following its two-day policy meeting concluding on Tuesday. Many analysts anticipate that the central bank will raise its inflation forecast to 2.0%, but there is uncertainty surrounding its stance on yield curve control, especially in light of market pressure on bonds, which are currently at their highest yields since 2013, reaching 0.89%.
In the euro zone, government bond yields dipped, with the benchmark 10-year German yield decreasing by 5 basis points to 2.787%.
Investors are betting on the persistence of high rates in the region, although new data shows inflation in Germany is on the decline.
Meanwhile, yields on 10-year Treasuries stood at 4.8602%, having increased by around 28 basis points this month. This week, market sentiment will be further tested when the U.S. Treasury announces its refunding plans, which may involve additional increases.
The significant rise in borrowing costs has led analysts and markets to believe that the Federal Reserve will maintain its current policy at its upcoming meeting this week.
The U.S. dollar index remained steady at around 106.650, while the euro experienced a minor decrease of less than 0.1% to $1.0556. The dollar’s exchange rate against the yen remained flat at 149.62, falling below last week’s peak of 150.78.
Risk appetite was somewhat dampened by Israel’s efforts to encircle Gaza’s main city in a self-declared “second phase” of a three-week conflict against Iranian-backed Hamas militants. However, analysts pointed out that this was just one of several factors influencing market sentiment.
Michael Hewson, chief market analyst at CMC Markets (LON:CMCX) UK, noted, “It’s easy to blame last week’s declines in equity markets on the unpredictable nature of events unfolding in the Middle East, and while that is part of it, we also saw disappointment on several fronts over poor company updates and downgrades to guidance which saw some outsized moves lower.”
Lombard Odier’s Chaar stated that investors would closely monitor whether the conflict escalates beyond the region and if it disrupts oil markets. He added that there is currently a premium on gold, which reached a five-month high of $2,009.29 on Friday.
Oil prices experienced a decrease of over 1% due to concerns about demand outweighing potential risks to Middle East supplies.