European stocks edged down, Wall Street futures remained largely flat, and the dollar hovered near a one-month low on the morning of Sept. 7.
In Europe, the STOXX index of 600 European companies edged down 1.48 points, or 0.31 percent as of 6:30 a.m. New York time on Sept. 7, after recording its second-highest close in history the day prior.
At the same time, the German DAX index fell by 45.92 points, or 0.29 percent, London’s FTSE 100 was down 23.77 points, or 0.33 percent, while the French CAC 40 inched down 2.45 points, or 0.04 percent.
Weighing on sentiment in Europe is a meeting later this week of European Central Bank (ECB) officials, who will consider slowing the pace of bond buys. As in the United States, central bank officials in Europe have maintained that one-off factors associated with the rapid reopening of the economy from pandemic lockdowns is driving the bulk of the upward price pressures, which will moderate early next year as supply chain dislocations are ironed out. The transitory inflation narrative has so far managed to soothe investor concerns, but with expectations of inflation hitting 5 percent in Germany this year, the views of ECB hawks may be harder to dismiss.
In U.S.-focused markets, Nasdaq futures ticked down 8.50 points, 0.05 percent, while S&P 500 futures inched down 0.75 points, or 0.02 percent, and Dow Jones futures inched up 6.00 points, or 0.02 percent, as of as of 6:22 a.m. New York time on Sept. 7.
The DXY dollar index, which measures the currency against six major rivals, rose 0.28 points to 92.31, putting the greenback near a one-month low after falling to its lowest level in a month on Sept. 3, when the Labor Department’s disappointing jobs report fueled speculation that the Federal Reserve would delay its much-anticipated announcement of pulling back on stimulus.
“Investor risk sentiment has improved as evident by global equity indices rising to fresh record highs and at the same time short-term U.S. yields have dropped back as market participants have scaled back further expectations for Fed rate hikes as soon as next year,” MUFG strategists wrote in a daily note.
The two-year Treasury bond yield, which has fallen over the past week, on Tuesday remained largely flat while the benchmark 10-year Treasury note yield, which has risen over the past week, ticked up again on Sept. 7 to 1.363 points. The steepening of the 2–10 yield curve suggests investors are betting the Fed won’t rush to taper its bond buying program.
“Inflation concerns and a less hawkish Fed can push the curve steeper, and we continue to like 2s10s steepeners,” Citi’s rates strategy team wrote in a note on Friday, the day the Labor Department released its closely-watched non-farm payrolls report, which showed 235,000 jobs created versus expectations of around 750,000.
Powell said at the symposium that if further signs confirm the strength of the labor market recovery, this could make it “appropriate to start reducing the pace of asset purchases this year,” with some analysts predicting a possible announcement as soon as during the Fed’s next policy meeting over Sept. 21–22. But the disappointing jobs report has prompted a revaluation of those expectations.
“It strikes us as highly unlikely the FOMC [Federal Open Market Committee] will announce a taper of its asset purchases at its September 21–22 meeting. Today’s miss on nonfarm payroll growth will disappoint top Fed officials who have signaled that it would take a couple more reports of 500K–1M jobs per month in order for ‘substantial further progress’ to be achieved,” they wrote.
