Stocks rebound slightly as investors weigh central banks’ next move

LONDON, June 20 (Reuters) – Stock markets posted modest gains on Monday after last week’s heavy losses as investors braced for a host of speakers from the U.S. Federal Reserve this week, where they could underscore their commitment to fight inflation regardless of the rate pain required.

Trading was diluted by a US holiday and investors predicted another choppy session.

The euro was little moved after French President Emmanuel Macron lost control of the National Assembly in Sunday’s legislative elections, a major setback that could plunge the country into political paralysis.

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However, yields on French government bonds widened, a sign of some nervousness among investors. Read more

At 09:20 GMT, the Euro STOXX (.STOXX) was up 0.3%. Germany’s DAX (.GDAXI) gained 0.4% while French stocks made a similar gain (.FCHI) despite Macron’s election setbacks.

Holger Schmieding, an economist at Berenberg, said Macron’s party should now learn the art of compromise to advance its policy.

“As most Republicans and other dominant forces in France are less interested in deepening European integration than Macron, his ability to shape and promote the European agenda will be even more limited than before,” he said. he declared.

Nasdaq futures climbed 0.68%, building on Friday’s gains, while S&P 500 futures rose 0.5%.

The S&P 500 fell nearly 6% last week to trade 24% below its January high. BofA analysts noted that this was the 20th bear market in the past 140 years and that the average decline from peak to trough was 37.3%.

Investors are hoping it won’t match the average duration of 289 days, given that it won’t end until October 2022.

In Asia, stocks fell on Monday. MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) lost 0.2% and the Tokyo Nikkei (.N225) 0.7%.

Chinese blue chips (.CSI300) rose 0.5%, helped by news that President Joe Biden was considering removing some tariffs on China. Read more

The focus on the path of interest rates and inflation is also expected to dominate markets this week. A series of central bank hikes last week, including a surprise move by the Swiss National Bank, will be followed by further tightening as policymakers try to rein in soaring prices.

Relief looks unlikely this week, with UK inflation figures expected to show another alarming reading that could push the Bank of England to rise at a faster rate.

A whole line of central bankers is also on the agenda this week, led by likely hawkish testimony from Federal Reserve Chairman Jerome Powell in the U.S. House of Representatives on Wednesday and Thursday.

“Markets are still digesting the price hike in Fed rate expectations, and global risk assets may struggle to post a sustainable rebound for now. All of this should keep the dollar mostly in demand. in a week when markets will focus on Powell’s testimony,” ING analysts said in a note.

UNCONDITIONAL

The Fed pledged last week that its commitment to containing inflation was “unconditional,” while Fed Governor Christopher Waller said on Saturday he would support another 75 basis point hike in July. Read more

“With growth momentum rapidly slowing and a Fed determined to restore price stability, we believe a mild recession from the fourth quarter is now more likely than not,” Nomura analysts warned.

“Financial conditions are expected to tighten further, consumers are experiencing a significant negative sentiment shock, energy and food supply disruptions have worsened, and overseas growth prospects have deteriorated.”

The hawkish outlook is keeping the dollar index higher and it last traded at 104.42. It was down 0.3% on the day, but not far off last week’s two-decade high of 105,790.

The euro rose 0.2% to $1.0516, still uncomfortably close to last week’s low at $1.0357.

The yen remained under heavy pressure as the Bank of Japan stubbornly stuck to its ultra-easy policies. The dollar was last down slightly at 134.64 yen, after hitting its highest since 1998 against the Japanese currency last week.

After massive moves last week, government bond yields were generally calmer.

Bitcoin slid 1% to $20,438, after rebounding strongly over the weekend amid talk of just one big buyer.

Oil prices fell slightly again after a sharp decline at the end of last week amid fears a global recession could dampen demand.

Brent fell 0.7% to $112.29, while U.S. crude fell 0.5% to $109.03 a barrel.

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Additional reporting by Wayne Cole in Sydney, editing by Mark Heinrich

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