European and global stock markets remained steady at a two-year high as investors awaited U.S. inflation data for insights into potential interest rate cuts by the Federal Reserve. The S&P 500 reached a historic milestone last week, exceeding 5,000 points with the help of strong performances by tech stocks. Despite recent increases in U.S. Treasury yields, investors have adjusted their expectations for rate cuts by the Fed. Although major Asian markets were closed for holidays, analysts predicted a quiet day in the markets as traders anticipated U.S. inflation data on Tuesday, along with British inflation data and euro zone GDP on Wednesday.
European stocks saw an increase on Monday, while world stocks remained stable at their highest level in over two years. The recent rise in equities has been accompanied by a decrease in expectations for rate cuts by the Fed, which now stands at fewer than five cuts this year, compared to six or seven at the beginning of the year. UBS multi-asset strategist Kiran Ganesh noted that the equity market has shown resilience due to stronger economic growth, which is favorable for equities. The release of strong U.S. jobs data earlier in February led to a reduction in expectations for a rate cut at the next Fed meeting, with the market pricing an 84.5% chance of rates remaining unchanged in March.
Meanwhile, International Monetary Fund managing director Kristalina Georgieva indicated that interest rates could start declining in leading economies around mid-year. The MSCI world equity index, which tracks shares in 47 countries, remained flat for the day, reaching its highest level since January 2022 earlier in the session.
In Europe, the STOXX 600 experienced a 0.3% increase, demonstrating relatively steady performance in February and a 1.4% gain in January. However, London’s FTSE 100 saw a slight decline of 0.1%, while Germany’s DAX rose by 0.3%. Conversely, Wall Street futures struggled to gain momentum, with Nasdaq 100 and S&P 500 e-minis showing little change, and Dow Jones futures decreasing by 0.1%.
Ganesh highlighted that the equity rally has been concentrated in a few specific companies, as the excitement surrounding artificial intelligence has boosted tech stocks. He suggested that a period of consolidation could occur in the coming weeks or months, but he maintained a positive outlook on the AI trend. The U.S. dollar index showed a 0.2% increase at 104.15, while the euro declined by 0.1% to $1.077 from its 10-day high earlier in the session.
As for bond yields, the yield on 2-year U.S. Treasuries, which is sensitive to interest rates, decreased by 4 basis points to 4.457%, retracting from its peak of 4.499% on Friday, the highest so far this year. The Japanese yen, which has weakened due to reduced U.S. rate cut expectations, strengthened slightly against the dollar to 148.96 per dollar.
Investors have also adjusted their expectations for rate cuts by the European Central Bank following comments from two policymakers last week, stating that the ECB needs more evidence of easing inflation before considering rate cuts. Euro zone government bond yields, which rose significantly last week, experienced a slight decrease on Monday, with the benchmark German 10-year yield dropping by four basis points to 2.338%.
In conclusion, global stock markets remained steady at a two-year high, awaiting U.S. inflation data that may provide insights into potential interest rate cuts. While European stocks rose on Monday and world stocks reached their highest level in over two years, Wall Street futures struggled. The equity rally has mainly been driven by tech stocks benefiting from the excitement surrounding artificial intelligence. The U.S. dollar index increased, while the euro declined slightly. Overall, investors have adjusted their expectations for rate cuts by both the Federal Reserve and the European Central Bank based on various economic factors.