European stocks gain, investors focus on central bank meetings
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[October 30, 2023] By
Elizabeth Howcroft
LONDON (Reuters) - European stock indexes opened a touch higher on
Monday as investors focused on the outlook for interest rates ahead of a
busy week of central bank meetings and economic data.
Investors are waiting for the outcome of meetings at the Bank of Japan
(BOJ) on Tuesday, the U.S. Federal Reserve on Wednesday and the Bank of
England (BoE) on Thursday, as well as Chinese manufacturing data on
Tuesday and key U.S. jobs data on Friday, all of which will be
scrutinised for any clues that central banks have raised interest rates
sufficiently to combat inflation and can look towards easing monetary
policy again.
The earnings season also continues with Apple, Airbnb, McDonald's,
Moderna and Eli Lilly & Co among the many reporting this week. Results
so far have been underwhelming, contributing to the S&P 500's retreat
into correction territory.
At 0834 GMT, the MSCI World Equity Index was little changed, up 0.3% on
the day but still near its lowest since late March.
Stocks were subdued in the Asian session, with MSCI's broadest index of
Asia-Pacific shares outside Japan up just 0.1%, having hit a one-year
low last week.
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Europe's STOXX 600 was up 0.7% and London's FTSE 100 was up 0.8%.
The market is looking for "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," said Samy Chaar, chief economist at Lombard Odier.
Japan's Nikkei fell 0.95% amid speculation the BOJ might tweak its yield
curve control policy when its two-day policy meeting wraps up on
Tuesday.
Many analysts expect the central bank will lift its inflation forecast
to 2.0%, but are unsure whether it will finally abandon yield curve
control in the face of market pressure on bonds. Yields are already at
their highest since 2013 at 0.89%.
In the euro zone, government bond yields were lower, with the benchmark
10-year German yield down 5 basis points at 2.787%.
Investors are betting that rates in the region will stay persistently
high, although new data showed inflation in Germany is falling.
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The London Stock Exchange Group offices are seen in the City of
London, Britain, December 29, 2017. REUTERS/Toby Melville/File Photo
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Yields on 10-year Treasuries stood at 4.8602%, having climbed around
28 basis points this month. Sentiment will be tested further this
week when the U.S. Treasury announces its refunding plans, with more
increases likely.
The sharp rise in market borrowing costs has convinced analysts and
markets the Federal Reserve will stand pat at its policy meeting
this week.
The U.S. dollar index was steady, at around 106.650, and the euro
was down by less than 0.1% at $1.0556.
The dollar was flat against the yen at 149.62, below last week's top
of 150.78.
Risk appetite was dulled to some extent by Israel's push to surround
Gaza's main city in a self-declared "second phase" of a three-week
war against Iranian-backed Hamas militants. But analysts said this
was just one of a number of factors affecting sentiment.
"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," Michael Hewson, chief market analyst
at CMC Markets UK, wrote in a client note.
Lombard Odier’s Chaar said that investors would be watching for
whether the conflict escalates beyond the region and whether or not
it disrupts oil markets.
"If the conflict remains localised and global oil supply is
unaffected, basically the market is going to remain much more
focused on what happens with rates and what happens with central
banks, and what happens with global growth and inflation," he said.
But, he added, there is some premium on gold, which touched a
five-month high of $2,009.29 on Friday. [GOL/]
Oil prices fell by more than 1% as worries about demand outweighed
risks to Middle East supplies. [O/R]
(Reporting by Elizabeth Howcroft Additional reporting by Wayne Cole
in Sydney; Editing by Mark Potter)
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