Stocks in Europe slumped Thursday while bonds continued to rally, as investors assessed central bank developments and anticipated how the economy will behave next year without as much stimulus.
After a nearly 5 basis point decline on Wednesday, the yield on the 10-year U.S. Treasury TMUBMUSD10Y,
The yield on the 10-year German bund TMBMKDE-10Y,
“The primary message being sent by the bond market seems to be one that investors believe future inflation is likely to become more muted, and future growth more subdued, meaning that monetary policy will not have to tighten as much in order to keep a lid on price pressures,” said Michael Brown, senior market analyst at Caxton FX.
The Stoxx Europe 600 SXXP,
U.S. stock futures ES00,
It was the first opportunity for overseas investors to react to the latest minutes coming from the U.S. Federal Open Market Committee, which showed division on the timing for reducing the rate of bond purchases. That didn’t come as a surprise since officials have been airing their disparate views in public.
The European Central Bank meanwhile is going to announce the results of its strategy review, in which the central bank is expected to move from targeting inflation below but close to 2%, to a symmetric 2% target, which is in line with other central banks. The announcement is set for 1 p.m. local time, or 7 a.m. Eastern, followed by a press conference with ECB President Christine Lagarde.
“In practice, it will make no major difference in our view as the majority of council members has probably been aiming for that anyway,” said Holger Schmieding, chief economist at Berenberg. He did think the press conference could shift markets. “It could reveal more about the current balance between hawks and doves on the council,” he said.
Fears over the delta variant of coronavirus were exacerbated by news Tokyo was extending a state of emergency, effectively ruling out spectators at the Olympics.
Software maker TeamViewer TMV,
