By Marc Jones and Rae Wee
LONDON/SINGAPORE (Reuters) -European shares slipped on Thursday, having uncoupled from Asia and Wall Street this week, while the pound edged up from an overnight low as traders weighed the likelihood of an early interest rate cut later.
Asia’s main markets had made solid gains overnight [.T][.SS] as investors there swooped back in after sharp tech-led selloffs this week, but for Europe it was all largely functional.
The pan-European STOXX 600 lost 0.3% as an 11% slump in French data-centre equipment firm Legrand’s shares added to recent worries around sky-high tech valuations and Germany’s Commerzbank weighed on the banking sector. [.EU]
Over in the currency markets, the dollar was just below multi-month highs after some upbeat U.S. data on Wednesday and as traders waited on the day’s main business – the 1200 GMT rate decision for the BoE.
Sterling was up 0.3% at $1.3080 having edged up from a seven-month low of $1.3011 overnight. [GBP/] Investors now see a roughly 40% chance of a rate reduction, with finance minister Rachel Reeves hinting this week she will raise UK taxes later this month. 0#GBPIRPR
“I think out of all the G7 central banks, the Bank of England is in the trickiest position,” Allspring multi-asset portfolio manager Rushabh Amin said, explaining that he expects the BoE to hold off from a cut until after Reeves’ November 26 budget.
“We are a bit underweight (on sterling) into the budget” he added, although that could be readjusted in the coming weeks. “I think the base case is just higher volatility.”
BOND MARKET MOVES
In the bond markets, gilt yields – the proxy for UK government borrowing costs – were little changed at 4.47%, while German bund yields dipped from a 4-week high.
U.S. Treasury yields mostly held their overnight gains as traders continued to trim bets on a Federal Reserve rate cut next month, something which has pushed the dollar to a five-month peak.
Data on Wednesday showed the U.S. services sector activity increased to an eight-month high in October as new orders grew solidly, while private payrolls rose 42,000 last month, exceeding expectations.
“We actually are not too worried about the job market,” said Keiko Kondo, head of multi-asset investments for Asia at Schroders.
“Market is tight, companies are probably investing more in technology, probably not necessarily hiring more people, but not firing people either. So probably the way that even the economy and the labour market operate is changing a bit.”
EYE ON THE FUTURES
Wall Street futures pointed to a largely steady start there later where investors remain focused on trade tariff legal rulings and on the ongoing government shutdown. [.N]
On the tariff front, U.S. Supreme Court justices raised doubts on Wednesday over the legality of President Donald Trump’s sweeping tariffs, in a case with implications for the global economy that marks a major test of Trump’s powers.
Asia had seen Japan’s Nikkei rebound 1.4% after sliding 2.5% on Wednesday.
Hong Kong’s Hang Seng rose 2.1%. South Korea’s Kospi also jumped more than 2% shortly after it opened but then lost traction to end a more modest 0.8% higher having tumbled 2.85% in the previous session.
In China, Shanghai’s benchmark stock index reclaimed the psychologically important 4,000 level, as optimism over tech self-sufficiency boosted semiconductor and artificial intelligence-related shares.
“We do see the potential broadening out of this rally,” said Daniel Blake, Morgan Stanley’s Asia and emerging markets equity strategist, referring to the rally in Chinese markets which has been led by technology companies.
Allspring’s Amin, however, said it was one of the markets it was thinking about taking profit on following this year’s rally.
The 10-year U.S. Treasury yield was last at 4.1473%, having risen nearly seven basis points in the previous session, while the two-year yield stood at 3.6213%.
Wednesday’s upbeat U.S. economic data releases have led to traders now pricing in a roughly 61% chance of a Fed cut in December, down from about 70% earlier in the week.
Against the yen, the dollar was down 0.3% in European trading to 153.70. The euro was up 0.2% at $1.1515.
In commodities, oil prices edged higher, with Brent crude futures up 0.6% at $63.95 a barrel [O/R] while gold rose 0.7% to back above $4,000 an ounce. [GOL/]
“The odds of a December Fed funds rate cut are drifting further south,” said Jose Torres, senior economist at Interactive Brokers.
(Reporting by Rae WeeEditing by Shri Navaratnam and Philippa Fletcher)
