Key Points
- US equity futures rose as easing inflation renewed hopes of Fed rate cuts.
- Core PCE inflation data showed its slowest increase since May, boosting markets.
- European stocks stagnated amid bleak regional growth forecasts. Asian equities rebounded, though quarterly losses remain likely.
- Oil prices increased as geopolitical tensions loomed over the Panama Canal.
US equity futures rose as Asian stocks rebounded following last week’s declines, buoyed by easing inflation concerns that rekindled hopes of Federal Reserve rate cuts. Contracts on the Nasdaq 100 climbed 0.7%, and S&P 500 futures gained 0.4%, extending Friday’s rally after the core personal consumption expenditures (PCE) price index posted its slowest increase since May. Meanwhile, the US dollar advanced as news of averted government shutdown reassured markets.
The core PCE data, indicating subdued inflation, has softened expectations of further Federal Reserve tightening despite robust US economic indicators leading the Fed to reduce anticipated rate cuts in 2025. Investors remain cautious, however, amid looming concerns over global tariffs expected under US President-elect Donald Trump and China’s sluggish economic recovery. Shane Oliver, AMP Ltd.’s chief economist, highlighted in a client note that while the overall share trend remains upward, the path forward is expected to be volatile and constrained.
In Europe, stocks remained flat, reflecting persistent pessimism about the region’s economic outlook. The Stoxx Europe 600 hovered near a four-month low, with German 10-year bund yields rising by three basis points and French equivalents gaining five. The euro weakened against the dollar as a Bloomberg survey projected slower euro-area economic growth for 2025 than previously anticipated, contrasting with the European Central Bank’s more optimistic forecast despite its recent rate cuts.
In Asia, equity benchmarks in South Korea and Taiwan rallied over 1%, snapping a six-day losing streak. However, the region remains on track for its first quarterly loss since September 2023, with Asian currencies reaching a two-year low last week.
Elsewhere, oil prices increased after last week’s decline, with markets weighing President Trump’s threats to reimpose US control over the Panama Canal. President Joe Biden’s signing of temporary funding legislation to avert a government shutdown further bolstered investor sentiment, providing stability until mid-March.