Bonds, Stocks Drop as Fed Seen Delaying Rate Cuts – Europe Market Wrap

Global bonds declined and stocks stumbled as traders factored in the likelihood of a reduced number of interest-rate cuts by the Federal Reserve this year.

The rates on 10-year Treasury bonds increased by around three basis points, following a 10 basis-point increase on Monday. This rise came after statistics revealed an unforeseen growth in US manufacturing, marking the first gain since September 2022. The global repercussions were significant, as British 10-year rates surged by up to 12 basis points, while German borrowing prices rose by over 10 basis points.

Within the realm of equities markets, Europe’s primary Stoxx 600 index relinquished its previous gains and is now trading at a very stable level, while contracts associated with the S&P 500 had a decline of around 0.2%.

Traders speculate that the Federal Reserve will implement less than three interest rate reductions this year. This belief may be reinforced if the figures at the end of this week indicate that the US economy maintained a strong pace of job creation in March. Additionally, there is a strong likelihood that the central bank would delay the timetable of its initial interest rate reduction. The probability of a rate cut in June momentarily dropped below 50% on Monday.

Federal Reserve Chair Jerome Powell, scheduled to deliver a speech on Wednesday, stated on Friday that policymakers are waiting for further evidence of price stability. Powell emphasised that it would not be suitable to decrease interest rates until there is certainty that inflation is under control.