Stocks climb on speculation of Fed rate cuts; Treasury yields increase

Stocks rose on hopes that a cooling economy will allow the Federal Reserve to cut rates this year. Treasury yields increased after their biggest two-day drop of 2023.

Europe’s Stoxx 600 Index gained 0.5%, while futures for the S&P 500 and Nasdaq 100 edged higher. The 10-year Treasury yield went up two basis points to 4.35%.

Investors are watching labor-market data closely, including Friday’s US jobs report, for clues on Fed rate cuts. US job openings hit their lowest since 2021, according to Tuesday’s JOLTS report. More data, including private payrolls and the US services sector, is due later Wednesday.

Justin Onuekwusi from St James’s Place Management noted that a slackening labor market gives the Fed more flexibility.

In Europe, retailers led gains, with Inditex SA (owner of Zara) surging over 5% after a strong update.

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Indian stocks outperformed in Asia, with the Nifty 50 Index rising more than 2% as an ally of Prime Minister Modi’s party backed a coalition government.

Traders are anticipating a cut in the European Central Bank’s key rate on Thursday from the current 4%. This move, along with a positive earnings outlook, could boost the Stoxx 600’s rally.

Lilia Peytavin from Goldman Sachs highlighted the importance of the ECB’s new growth and inflation outlook.

The dollar remained steady, and the yen fell against it after weak April wage data from Japan. Oil prices were stable after a previous drop, and Bitcoin surpassed $70,000.