Traders eye economy, rates as stocks rally pauses: Markets wrap

(Bloomberg) — A rally in global stocks paused on Tuesday as investors turned their attention to risks to the economy and the prospect of more restrictive central bank policy moves.

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In corporate news, J Sainsbury Plc fell after the UK grocer maintained its pre-tax profit forecast following a strong first quarter in a sign of lingering cost pressures. Real estate stocks outperformed as Europe’s main index Stoxx 600 edged higher. Futures on the S&P 500 and Nasdaq 100 were little changed as U.S. stocks were out-of-the-money on Tuesday due to the Independence Day holiday.

After a strong first half for stocks, some parts of the stock market seem overextended, with S&P and Nasdaq futures „overextended” and sitting on „moderately large gains” with the Nikkei, according to strategists at Citigroup Inc. According to the team led by Chris Montagu, the overall market is much expanded. Given how far the market has run, investors may move to protect these gains in the coming week.

Signs of a cooling in the U.S. economy — which is influencing the path of the Federal Reserve’s monetary-tightening cycle — mean investors are fueling expectations for stocks throughout the year, especially as central banks around the world maintain their dovish rhetoric.

The Australian dollar was volatile on Tuesday after the country’s central bank kept interest rates unchanged. The Reserve Bank of Australia’s decision has divided both economists and traders on the question of a hike or pause. The country’s policy-sensitive three-year bond yield reversed much of the previous gain. Australian shares rose.

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„A pause may come as a relief to some,” said Matt Simpson, senior market analyst at CitiIndex in Sydney, „I suspect we’re not too far off a peak rate. At 4.1%, the RBA’s cash rate is „very low” compared to its peers, the pause At the same time, he said „inflation is still high” and wages are expected to rise.

Elsewhere, Japan’s TOPICS fell and Hong Kong’s Hang Seng index swung between gains and losses. Shares of Chinese non-ferrous metals firms rose after the government imposed restrictions on exports of gallium and germanium, important to the semiconductor, telecommunications and electric-vehicle sectors.

The export restrictions show China has some leverage to retaliate against moves by the US, Japan and Europe to cut Beijing off from advanced technology, but it could accelerate these countries’ efforts to reduce dependence on the world’s second-largest economy.

Treasuries were not trading on Tuesday due to a holiday in the US. Meanwhile, a key part of the U.S. Treasury yield curve neared its most inverted position in decades on Monday as traders bid for further price hikes from the Federal Reserve. The two-year yield is about 111 basis points higher than the 10-year.

Highlights of this week:

  • American Independence Day is a national holiday. Financial markets were closed on Tuesday

  • China Caixin services and composite PMI, Wednesday

  • Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday

  • The OPEC international seminar, with speakers including OPEC+ oil ministers, begins in Vienna on Wednesday

  • The FOMC will release minutes from its June policy meeting on Wednesday

  • New York Fed President John Williams in a „fireside chat” at the Federal Reserve Research Association’s meeting at the New York Fed on Wednesday.

  • US Initial Jobless Claims, Trade, ISM Services, Jobs, Thursday

  • Dallas Fed President Lori Logan speaks on a panel about policy challenges for central banks at the CEBRA meeting on Thursday.

  • US unemployment rate, non-farm payrolls, Friday

  • The ECB’s Christine Lagarde addresses an event in France on Friday

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Some key moves in today’s markets:

Shares

  • The Stoxx Europe 600 was little changed at 8:26 a.m. London time

  • S&P 500 futures were little changed

  • Nasdaq 100 futures fell 0.1%

  • The future of the Dow Jones Industrial Average was little changed

  • The MSCI Asia Pacific Index was little changed

  • The MSCI emerging market index rose 0.3%

Coins

  • The Bloomberg Dollar Spot Index fell 0.1%

  • The euro was little changed at $1.0908

  • The Japanese yen rose 0.1% to 144.52 per dollar

  • The offshore yuan was up 0.3% at 7.2276 per dollar

  • The British pound was little changed at $1.2689

Cryptocurrencies

  • Bitcoin fell 0.3% to $31,038.76

  • Ether fell 0.2% to $1,955.18

Bonds

  • The yield on 10-year Treasuries was little changed at 3.85%.

  • Germany’s 10-year yield rose three basis points to 2.47%

  • Britain’s 10-year yield rose three basis points to 4.47%

materials

  • Brent crude was up 0.9% at $75.29 a barrel

  • Spot gold rose 0.2% to $1,926.11 an ounce

This story was produced with the help of Bloomberg Automation.

–With assistance from Jason Scott, April Ma and Ruth Carson.

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