Declining oil prices may spark a stock market rebound before the economy picks up
Oil price drops can lift stocks by easing inflation fears and rate expectations, but the rally's durability hinges on the reason for the decline.
European stocks rose as oil eased and French bonds rallied after Moody's kept France's rating.
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Markets are seeing a calmer start to the new week, helped by oil prices easing off and bringing some steadier conditions elsewhere.
The spotlight this week falls on major central bank meetings, with the RBNZ, BOC, Fed, ECB, and BOJ all scheduled. With month-end effects possibly adding to the mix, traders and investors are largely staying on the sidelines for now.
Oil prices are moving lower after US President Trump said he is considering a deal with Iran — once again. This narrative has been repeated many times before, but the glimmer of hope is at least easing some of the upward pressure from last Friday. WTI crude is down 2.6% at $100.75, though still at elevated levels.
Treasury yields are barely moving, with 10-year yields still hovering near 5%. That is not adding much volatility to broader markets. Instead, the bond market in Europe is drawing more attention. After Moody's kept France's Aa3 rating late last week, French bond yields are falling, and the France-Germany 10-year yield spread has narrowed to 160 bps — down from a high of 176 bps last week.
That is providing some relief for European stocks on Monday, with France's CAC 40 index rising 0.9%. The risk mood is also holding up better, as US futures look to bounce back. Tech stocks are staying higher in pre-market trade, with Nasdaq futures up 0.5%, though investors will be watching key earnings from Microsoft, Alphabet, and Amazon in the coming days.
In other markets, the dollar is little changed on the day, with traders having little to work with, while gold is defending the $4,000 mark for now. On the latter, buyers are managing to hold a bounce near that level, but pressure remains after the precious metal dipped below $4,000 for the first time since July on Friday.
Looking ahead, market attention will continue to shift toward the major central bank decisions this week. After so much focus on inflation data and headlines, it is finally the central banks' turn to speak.
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