(Bloomberg) — European stocks fell after policymakers signaled they needed more evidence that price pressures were under control, even as the latest data showed euro-area inflation slowing slightly.
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The pan-European Stoxx 600 index fell about 0.5%, led by insurers and automakers. France’s CAC 40 lost most of its gains from Monday as the country prepared for a second round of elections, with uncertainty over the outlook for French assets remaining. U.S. stock futures fell.
Euro zone consumer prices slowed in line with economists’ estimates in June, although the core measure, which strips out volatile items such as food and energy, remained unexpectedly unchanged.
After cutting interest rates by a quarter-point in June, officials are working to determine whether inflation is moderate enough to warrant further cuts. At the European Central Bank’s annual meeting this week in Sintra, Portugal, President Christine Lagarde and Chief Economist Philip Lane said there was no convincing evidence yet that the threat had passed.
“Lagarde has delivered the message very well,” said Frederique Carrier, head of investment strategy at RBC Wealth Management. “We don’t expect a change in July, but in September and December.”
European stocks’ rally in recent weeks has been halted by political turmoil following the call for early elections in France. The first round of legislative elections has narrowed the possible outcomes to two — both of which spell prolonged uncertainty for investors. The second round of voting is scheduled for Sunday.
“We expect France to become more difficult to govern, and there will be fewer reforms, and that is not a positive thing,” Carrier said.
Among individual stocks, food services company Sodexo SA’s third-quarter revenue fell short of expectations. Tiremaker Michelin’s shares fell in Paris, with analysts pointing to a pre-market call after markets closed on Monday.
Shares of HelloFresh SE rose after JPMorgan said data pointed to stability in the key North American food service sector. Siemens Energy AG rose 4.3% after the Financial Times reported the company plans to hire more than 10,000 new staff for its network-related business.
Meanwhile, 10-year U.S. Treasury yields pared some of Monday’s gains amid speculation that a Donald Trump presidency will lead to a larger U.S. fiscal deficit and higher inflation. The dollar index headed higher for a second straight day.
“The dollar is supported by higher US Treasury yields overnight,” said David Forster, chief strategist at Credit Agricole CIB. “The irony is that it is investors’ concerns about US fiscal sustainability that are driving US Treasury yields higher.”
U.S. Treasuries have been volatile this year as traders have swung between buying bonds on signs of slowing U.S. prices and concerns about higher interest rates for longer. Yields on five-year notes have risen more than 20 basis points from a low of around 4.20% less than three weeks ago.
After last week’s debate damaged Joe Biden’s chances of winning reelection, Wall Street strategists — including those from Goldman Sachs Group Inc., Morgan Stanley and Barclays PLC — are taking a fresh look at how a Trump win might affect the bond market. They’re urging clients to prepare for steady inflation and higher yields over the long term.
On the other hand, strategists at JPMorgan Chase & Co. said now is the time to take profits on Treasuries.
Federal Reserve Chairman Jerome Powell’s speech at the European Central Bank Forum in Portugal could provide further clues on the policy outlook. European Central Bank President Lagarde is also due to speak. Traders will also be watching U.S. jobs data later Tuesday.
Asian stocks rise
Asian stocks rose, led by gains in Japan and Hong Kong. The MSCI AC Asia Pacific Index hit its highest level since late May amid a rally in Hong Kong-listed property and electric vehicle stocks.
Japan’s stock index edged closer to a record high, helped by gains in financial stocks amid expectations of higher lending rates. Ten-year domestic yields continued to climb above 1% on bets the central bank will raise interest rates.
In China, pessimism about the domestic economy has increased demand for government debt. The central bank said it would borrow government bonds from primary dealers, a sign it may be considering selling securities to cool the rally.
Yields on China’s benchmark bonds fell to a record low on Monday as investors worried about long-term economic growth.
In commodities, oil prices hit a two-month high on rising tensions in the Middle East and concerns about the rapid start of the Atlantic hurricane season. Iron ore remained near its highest close in nearly a month. Gold was little changed.
Main events this week:
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Job Opportunities in the United States, Tuesday
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Jerome Powell and Christine Lagarde speak at the European Central Bank Forum in Portugal, Tuesday.
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China Services PMI, Wednesday
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Eurozone PMI and PPI for services, S&P World, Wednesday
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US Fed Minutes, ADP Employment Report, ISM Services Report, Factory Orders, Initial Jobless Claims, Durable Goods, Wednesday
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Federal Reserve Board Member John Williams Speaks Wednesday
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UK General Election, Thursday
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US Independence Day Holiday, Thursday
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Eurozone Retail Sales, Friday
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US jobs report, Friday
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Federal Reserve Board Member John Williams Speaks Friday
Some key movements in the markets:
Stores
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The Stoxx Europe 600 index was down 0.5% as of 10:19 a.m. London time.
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S&P 500 futures fell 0.4%.
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Nasdaq 100 futures fell 0.5%.
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Dow Jones Industrial Average futures fell 0.3%.
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The MSCI Asia Pacific Index was little changed.
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The MSCI Emerging Markets Index fell 0.6%.
Currencies
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The Bloomberg Dollar Index rose 0.1%.
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The euro fell 0.2% to $1.0717.
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The Japanese yen was little changed at 161.58 yen to the dollar.
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The offshore yuan was little changed at 7.3072 to the dollar.
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The pound fell 0.2% to $1.2631.
Cryptocurrencies
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Bitcoin fell 1% to $62,607.58
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Ether fell 0.6% to $3,441.5
Bonds
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The yield on the 10-year US Treasury note was little changed at 4.46%.
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The yield on the 10-year German bond was little changed at 2.60%.
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The yield on the 10-year British bond fell by two basis points to 4.26%.
Goods
This story was produced with the help of Bloomberg Automation.
–With assistance from Michael Msika, Sagarika Jaisinghani and Aya Wagatsuma.
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