(Bloomberg) — Optimism that the Federal Reserve will start cutting interest rates this year and a string of upbeat results pushed stocks and bonds higher Tuesday.
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The Stoxx 600 index rose to its highest level in more than a month, taking its cue from Wall Street’s gains on Monday. US equity futures were steady after the S&P 500 closed up 1% and above its average price of the past 50 days. Ten-year Treasuries extended their advance, with the yield dipping three basis points to 4.46%.
Investors are gaining confidence that the Fed will be able to start unwinding elevated rates while companies deliver positive earnings surprises. The share of European firms reporting better-than-expected earnings for the first quarter has jumped sharply, according to HSBC strategists. Among members of the S&P 500, first-quarter profit growth has easily surpassed “mediocre expectations,” according to analysts at Bloomberg Intelligence.
“In this environment of growth not rolling over as much as we feared and potentially cuts coming in, there is upside for earnings going forward,” Beata Manthey, head of European equity strategy at Citigroup Inc., said in an interview with Bloomberg TV
UBS Group AG jumped more than 6% after it returned to profit and UniCredit SpA climbed on better-than-forecast results. German semiconductor-maker Infineon Technologies AG cut its revenue forecast, signaling demand from the automotive industry remains weak.
“One part of the European equities that we are not so bullish about — we are indeed underweight — is the auto sector,” Manthey said. “Trade tensions is something that we worry about a lot. “
In a week light on data but heavy on Fedspeak, Minneapolis Fed President Neel Kashkari is set to appear Tuesday. Federal Reserve Bank of Richmond President Thomas Barkin said Monday said he expects high interest rates to eventually cool US inflation to the central bank’s 2% target.
“The market is taking a positive view about the US job data and anticipating that the Fed will indeed be able to cut rates,” said Arnaud Girod, head of economics and cross-asset strategy at Kepler Cheuvreux in Paris.
Swaps traders are betting on about 45 basis points of Fed rate cuts by December. US central bankers left their benchmark rate unchanged last week at a more than two-decade high of 5.5%, where it’s been since July of last year.
Oil advanced for a second day on tensions in the Middle East, with Israel rejecting a cease-fire proposal for the Gaza Strip.
Key events this week:
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Eurozone retail sales, Tuesday
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Walt Disney earnings Tuesday
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Minneapolis Fed President Neel Kashkari speaks, Tuesday
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Toyota earnings, Wednesday
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Fed Governor Lisa Cook speaks, Wednesday
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Bank of Japan issues summary of opinions from April policy meeting, Thursday
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China trade, Thursday
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UK BOE rate decision, Thursday
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US initial jobless claims, Thursday
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UK industrial production, GDP, Friday
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ECB publishes account of April policy meeting, Friday
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BOE Chief Economist Huw Pill speaks, Friday
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US University of Michigan consumer sentiment, Friday
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Chicago Fed President Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures were little changed as of 5:36 a.m. New York time
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Nasdaq 100 futures fell 0.1%
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Futures on the Dow Jones Industrial Average rose 0.2%
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The Stoxx Europe 600 rose 0.6%
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The MSCI World index rose 0.1%
Currencies
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The Bloomberg Dollar Spot Index rose 0.1%
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The euro was little changed at $1.0760
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The British pound fell 0.2% to $1.2542
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The Japanese yen fell 0.4% to 154.48 per dollar
Cryptocurrencies
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Bitcoin rose 1.5% to $64,220.79
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Ether rose 1.4% to $3,119
Bonds
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The yield on 10-year Treasuries declined three basis points to 4.46%
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Germany’s 10-year yield declined three basis points to 2.44%
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Britain’s 10-year yield declined seven basis points to 4.15%
Commodities
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West Texas Intermediate crude was little changed
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Spot gold fell 0.4% to $2,315.38 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Julien Ponthus.
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