European stock markets showed slight gains on Thursday morning as Treasury yields pulled back slightly following the post-CPI surge. Gold remained steady at $2,375, oil recovered after a 3% decline, and the euro and other currencies strengthened against the dollar. Bitcoin tested the $60,000 support level with concerning chart patterns.
Meanwhile, Wall Street experienced its fourth consecutive day of decline, with the S&P 500 down 4% from its recent all-time high. Chipmakers, particularly ASML, reported soft figures leading to a decline in the market. Nvidia fell nearly 4% while Tesla extended its losses by 1% due to weak sales figures. Both the Nasdaq and S&P are down 3% for the week.
The 10-year US Treasury yield fell back to 4.58% from 4.7% earlier in the week, easing some pressure on the dollar. Asian equities also rebounded overnight, contributing to a positive start in Europe. The FTSE 100 gained 0.5% in early trade but remains down 1% for the week.
Oil prices found support after a sharp 3% drop, attributed to concerns over demand and geopolitical tensions in the Middle East. Crude futures have erased gains since the 1 April attack on the Iranian consulate. JPMorgan reported a 200,000 bpd decrease in oil consumption for April, while EIA data showed a 2.7mn barrel rise in inventories, double the expected increase. Iran’s oil exports have reached a six-year high at 1.56mn barrels per day.
Finance ministers from the US, Japan, and South Korea expressed concerns over the sharp depreciation of the Japanese yen and Korean won, pledging to monitor foreign exchange market developments closely. There are worries about the relative strength of the dollar as the Fed hints at a prolonged period of higher interest rates.
In terms of interest rate cuts, BofA predicts the first cut in December but highlights challenges such as unfavourable base effects on core PCE inflation. There is a possibility that the Fed may delay cuts until March 2025 based on Powell’s emphasis on year-on-year inflation rates.
Lastly, trade tensions persist regardless of the election outcome. President Biden proposed tripling tariffs on Chinese steel and aluminum while ensuring US Steel remains an American company. Trade conflicts are expected to continue in the near future.