Stocks, Bonds Gain on Powell Rate-Cut Reassurance – Europe Market Wrap

In recent days, traders have reduced their expectations for rate cuts, citing evidence of economic resiliency and a more cautious tone from Fed policymakers. This has raised questions about Powell and his colleagues’ ability to deliver on the central bank’s prediction of three rate cuts this year.

Treasuries remained stable after finishing broadly higher on Wednesday, following a small gain geared towards the front end of the curve. In Japan, the breakeven inflation rate for 10-year CPI-linked bonds jumped one basis point to a new high.

Jitters persist, however, as a blowout reading for March private payrolls suggested the prospect of a similarly big number for the monthly non-farm payrolls report on Friday. Swap markets still expect less than three rate decreases in 2024, with just a 56% likelihood of the easing cycle beginning in June.

Atlanta President Raphael Bostic also dampened optimism by projecting only one rate decrease this year, in the fourth quarter. Several additional rate-setters, including Richmond Fed President Thomas Barkin and Cleveland Fed President Loretta Mester, are scheduled to speak later on Thursday.

Meanwhile, euro-area bond yields fell on predictions that the European Central Bank will begin policy easing on June 6 and slash rates three more times by the end of the year.