European stocks fall, Japan rate hike bets boost yen
Elizabeth Howcroft |
European stock markets have pulled back from recent gains, while the yen and Japanese government bond yields have received a boost from comments suggesting the central bank could hike interest rates.
Equities were jittery in November, but strengthened in the past week, helped by traders increasingly betting that the US Federal Reserve will cut rates at its December meeting.
Europe’s STOXX 600 was down 0.3 per cent on Monday morning as a fresh wave of risk aversion gripped markets.
London’s FTSE 100 was flat and Germany’s DAX was down 0.9 per cent. The MSCI World Equity Index was down 0.1 per cent on the day.
A drop in defence stocks helped fuel the weakness in European indices, after US and Ukrainian officials held what both sides called productive talks on Sunday about a possible Russia/Ukraine peace deal.
In a further sign of risk aversion, bitcoin was down 4.9 per cent at $US86,675.96, extending losses and putting bitcoin-buying companies under pressure.
Gold hit its highest in six weeks, driven by expectations for US rate cuts, and was last up 0.6 per cent at $4,254.97.
Bank of Japan Governor Kazuo Ueda said the central bank would consider the “pros and cons” of raising rates at its next policy meeting, causing traders to sharply increase their rate-hike bets.
The yen rose to a session high of 155.49 per dollar after the remarks, and the two-year Japanese government bond yield rose two basis points to hit its highest since June 2008.
The dollar-yen pair was last at 155.16.
Japan’s low rates are the basis of a popular carry trade, in which traders borrow the yen at a low cost to invest in other riskier assets.
Fiona Cincotta, senior market analyst at City Index, said Monday’s downbeat market sentiment could be prompted by the possibility of higher rates in Japan making this position less profitable.
“Concerns over the unwinding of the carry trade have been lingering for some time, but I think comments by governor Ueda hinting at a rate hike in December has really revived those concerns.”
The dollar index was down 0.2 per cent on the day, at 99.258, while the euro was up 0.3 per cent at $US1.1626.
Euro zone government bond yields edged higher as investors waited for euro zone inflation data due on Tuesday.
Germany’s two-year government bond yield, which is sensitive to expectations for the European Central Bank’s policy outlook, hit its highest since March 28.
Traders were waiting for economic data on manufacturing, services, and consumer sentiment, this week to set the tone ahead of the Fed’s meeting on December 9-10, at which markets are pricing in a 92.4 per cent chance of a 25 basis point rate cut, according to LSEG data.
“This week’s data will present the last chance for markets to reconsider a December Fed cut that is now fully priced in.
While the market’s dovish bets appear too high, we think the ISM, ADP and PCE figures will validate them,” ING FX strategist Francesco Pesole wrote in a note to clients.
Matt Simpson, senior market analyst at StoneX in Brisbane, said if the incoming data signalled a slowdown without tipping into recession then sentiment would probably remain upbeat while the US dollar weakens as it typically does at this time of year.
Oil prices rose, with Brent crude futures up 1.7 per cent at $US63.46 as the Caspian Pipeline Consortium halted exports after a major drone attack and US-Venezuela tensions raised concerns about supply, while OPEC+ agreed to leave oil output levels unchanged for the first quarter of 2026.
Reuters
