Bond rally continues as traders eye end of rate hikes
Bonds rallied for a second day as traders bet global central banks are nearing the end of an aggressive streak of rate increases.
European equities found firmer footing Tuesday after starting the week with the steepest losses in more than a week, with healthcare and financial services leading a modest gain in the Stoxx 600 index. Italian bonds led a rally across the Eurozone.
Hopes are rising that a reprieve in inflation will pave the way for central banks to step back from a tightening regime that’s spurred the fastest pace of hikes in four decades. Consumer price index reports are due out of the Eurozone and UK Wednesday. Last week’s data showed US price pressures cooled more than economists had forecast.
European Central Bank Governing Council member Ignazio Visco said inflation may come down more quickly as lower commodity prices start to trickle through the economy. “The ECB projects that by the end of 2025 there will be 2% — my impression is that it might be faster,” Visco told Bloomberg Television on Tuesday.
Meanwhile, US futures steadied ahead of bank earnings. Morgan Stanley and Bank of America Corp. may temper early optimism with more downbeat results due before US trading opens, according to Bloomberg Intelligence.
Investors will also be watching US retail sales due later on Tuesday for any read on the health of the consumer. The median economist forecast indicates spending will remain robust.
Treasury Secretary Janet Yellen said the nation is on a “good path” to bringing down inflation without a major weakening in the jobs picture.
Bets on longer-term bonds risk may start to become more popular as the Fed nears the endpoint for the cycle, BMO Capital Markets strategist Ian Lyngen wrote in a note.
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