European, Japanese shares hover close to record highs
Business
European, Japanese shares hover close to record highs
LONDON/SINGAPORE (Reuters) - European shares teetered just shy of all-time highs on Tuesday, while euro zone wage data did little to jolt struggling government bonds, and Asian shares slipped as a record rate cut in China failed to excite investors.
Europe's broad STOXX 600 benchmark (.STOXX) was steady on the day, but after its recent run up remains less than 1% from its record peak hit in early 2022, and Japan's Nikkei (.N225) backed away from its flirtation with the index's 1989 all-time high, closing 0.3% lower.
Futures for the S&P 500 dipped 0.3%; the index (.SPX) is already in uncharted territory.
The main data release for Tuesday on a fairly quiet calendar was ECB numbers that showed the annual growth in negotiated wages across the euro area slowed to 4.5% in the final quarter of 2023, down slightly from a record high of 4.7% in the third quarter.
The ECB has singled out wages as the single biggest risk to its 1-1/2 year crusade against inflation, in which it raised key interest rates to record highs.
It did little to move markets however, and Germany's 10-year Bund yield, which moves inversely to its price, was down 2 basis points at 2.38% while the euro was 0.2% higher at $1.0799.
The euro zone's benchmark yield has risen around 35 bps so far this year as bumps in the road to lower inflation and better-than-feared economic data in most of the world, particularly the United States, have caused markets to push back their late-2023 expectations of significant rate cuts early this year.
Germany's rate-sensitive two-year yield has risen 40 bps year to date.
"When you look at the bigger picture, we’ve put a tremendous amount of mileage behind us, the front end is much closer to fair value than at the beginning of the year, and closer to what the central banks tell us what they will do," said Peter Schaffrik, chief European macro strategist at RBC Capital Markets.
Markets currently expect around 100 basis points of rate cuts from the Federal Reserve this year and only a touch more from the European Central Bank.
But the generally better-than-expected economic data has been good news for shares.
"If you’re in an environment where the economy is stronger than you previously thought, and inflation is going to stay a bit sticky, and that means nominal earnings will stay decent," said Schaffrik.
The highest profile earnings release of the week is stock market darling chipmaker Nvidia, which reports on Wednesday. (NVDA.O).
On Tuesday, British lender Barclays (BARC.L) rose 4% after it published earnings and laid out a plan to revive its flagging share price, and Walmart (WMT.N) gained in pre-market trading after its earnings and announced it would buy smart-TV maker Vizio. (VZIO.N).
In other premarket moves, Discover Financial (DFS.N) shares rose 13% after US lender Capital One's planned $35.3 billion acquisition of the credit card issuer.
CHINESE RATE CUT
China's five-year loan prime rate was lowered by 25 basis points to 3.95%, bigger than the five to 15 bp cuts forecast by economists. The one-year rate was left at 3.45%, helping blue chips (.CSI300) to finish the day up 0.2%, after an earlier fall, and Hong Kong's Hang Seng index (.HSI) to rise 0.6%.
The Aussie dollar, a favourite proxy for China's fortunes, barely moved and iron ore futures - sensitive to demand from Chinese construction - slid 3%.
"This is the largest rate cut to the 5-year LPR that we have seen," said David Chao, global market strategist at Invesco.
Leaving one-year rates on hold, however, sends the signal that Beijing is still being selective on the policy front and "has not fully pivoted to broad-based easing," Chao said.
The yuan touched its lowest in three months in early trade before steadying at 7.1979 in the European morning.
Ten-year US Treasury yields, up 10 basis points last week dropped 2 bps to 4.27%, on returning from a one-day holiday. The dollar was strong enough to hold above 150 yen.
In commodities, Brent crude futures dropped around 1% to $82.76 a barrel. Gold rose 0.46% to $2,026.7 an ounce.
Soft commodities started the week on the back foot with wheat futures dropping to the weakest level in three months on pressure from abundant Black Sea supplies. Short-covering lifted soybean futures to one-week highs.
