European stocks retrace some losses ahead of Fed minutes
European stocks clawed back some losses after a previous bruising session for global equities, as investors awaited the minutes of the Federal Reserve’s latest monetary policy meeting amid signs of an economic slowdown.
The Stoxx 600 stock index added 0.8% in early trades. London’s FTSE 100 rose 0.5% and futures trading implied Wall Street’s S&P 500 would add 0.5% at the New York open.
The moves came after the Stoxx fell more than 1% on Tuesday and Wall Street’s tech-heavy Nasdaq Composite lost 2.3% as investors dumped stocks in response to the warning. Snap social media group on macroeconomic conditions.
Data released on Tuesday also showed that new home sales in the United States fell nearly 17% in April month-over-month. Purchasing manager surveys also indicated that growth in business activity in the US and UK slowed in May.
The Fed, which influences monetary policy around the world and releases the minutes of its latest rate-setting meeting later Wednesday, has pledged to raise borrowing costs until it has gotten under control. inflation, which is reaching four-decade highs. However, some analysts are now wondering how far the Fed can raise interest rates before it runs the risk of tipping the world’s largest economy into recession.
“A slowing economy doesn’t mean the Fed should shift from hawkish to dovish mode, but it does raise the question of how much a given level of rates causes a slowdown in activity,” he said. said Standard Chartered strategist Steve Englander.
“If the economy is already below potential and reacting to rates from three to six months ago, the slowdown has yet to go deeper. The trajectory of rate hikes could be flattened while putting pressure on the decline in demand.
Analysts said equities were also finding support in the rebalancing of funds that needed to buy stocks, after steep declines in recent months, to maintain asset allocation mandates. The FTSE All World index of developed and emerging market stocks has fallen 4.1% in May so far, following an 8% loss in April.
“Long-term investors like pension funds, which have allocation thresholds to meet, typically end up rebalancing their portfolios as the end of the quarter approaches,” Barclays strategists said in a note to clients. .
“That should drive flows out of fixed income into equities to some extent over the next few weeks.”
US Treasuries, which rallied on Tuesday as traders bet on the continuation of less aggressive monetary policy from the Fed, held steady in European morning trade.
The yield on the 10-year Treasury note remained stable at 2.76%, around a one-month low. The two-year yield, which closely tracks interest rate expectations, traded at 2.52%, also around a month low.
The euro lost 0.5% against the dollar to just under $1.07 as the rebound fueled by European Central Bank President Christine Lagarde signaling an end to negative interest rates in the euro zone has faded.
Elsewhere, the New Zealand dollar rose 0.67% against its US counterpart to $0.65 after the country’s central bank raised its key interest rate by half a percentage point to 2 % and said “it remains appropriate to continue to tighten monetary conditions at pace.” to fight inflation.
Brent, the oil benchmark, rose 0.8% to $114.38 a barrel.