Stocks gain, futures steady as treasuries advance: markets wrap

Spot gold rose 0.5% to $1 936.05 an ounce.
Image: Michael Nagle/Bloomberg

Stocks in Europe rose Thursday and US futures were steady as traders digested the Federal Reserve’s view that a robust US economy can weather the campaign against high inflation now underway.

The Stoxx Europe 600 index was up 0.5% at the open, with basic resources leading the advance and the technology sector outperforming after a surge in Asian tech shares earlier. Futures on the S&P 500 and Nasdaq 100 were little changed after the S&P 500’s best two-day advance since 2020. An Asia-Pacific equity index rose about 3%, boosted by China’s effort to stabilize its markets. Possible progress on Russia-Ukraine cease-fire talks is also helping sentiment.

The Fed raised rates by a quarter percentage point and signaled hikes at all six remaining meetings in 2022. Chair Jerome Powell said the US economy is “very strong” and can handle monetary tightening.

Treasuries advanced, while a portion of the bond curve — the gap between five- and 10-year yields — inverted for the first time since March 2020. For some, the latter highlights a growing risk that the Fed’s efforts to rein in inflation could trigger an economic downturn.

The dollar slipped and the yen hovered near a six-year low. Oil snapped a three-day drop but remains down more than 10% for the week.

The Fed said it would begin allowing its $8.9 trillion balance sheet to shrink at a “coming meeting,” without elaborating. The US central bank is among a number from Brazil to the UK that are raising borrowing costs. The commodity shock from Russia’s war in Ukraine is continuing to aggravate price pressures and economic risks, portending more market volatility.

“Our view is that the Fed put is just a lot lower,” said Mary Nicola, a global multi-asset portfolio manager at PineBridge Investments, referring to the notion that US policy makers may be slower to step in to help financial markets if they hit turbulence.

“If we put aside the current geopolitical situation and just focus on the US economy, the US consumer, their household balance sheets are in a much better position than they were post the global financial crisis,” she said.

After the latest round of peace talks, a Russian spokesman said a neutral Ukraine with its own army is a possible compromise, while Kyiv said it needs security guarantees. President Joe Biden said the US would send Ukraine drones and thousands of anti-aircraft and anti-tank missiles.

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Here are some key events to watch this week:

  • Bank of England rate decision, Thursday
  • ECB President Christine Lagarde, Executive Board member Isabel Schnabel, Governing Council member Ignazio Visco and Chief Economist Philip Lane speak at a conference, Thursday
  • Bank of Japan rate decision, Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 rose 0.5% as of 8:10 a.m. London time
  • Futures on the S&P 500 were little changed
  • Futures on the Nasdaq 100 were little changed
  • Futures on the Dow Jones Industrial Average were little changed
  • The MSCI Asia Pacific Index rose 3.4%
  • The MSCI Emerging Markets Index rose 3.6%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.1%
  • The euro rose 0.1% to $1.1048
  • The Japanese yen was unchanged at 118.73 per dollar
  • The offshore yuan was little changed at 6.3584 per dollar
  • The British pound rose 0.2% to $1.3176

Bonds

  • The yield on 10-year Treasuries declined four basis points to 2.15%
  • Germany’s 10-year yield was little changed at 0.39%
  • Britain’s 10-year yield declined two basis points to 1.61%

Commodities

  • Brent crude rose 3.3% to $101.29 a barrel
  • Spot gold rose 0.5% to $1 936.05 an ounce
© 2022 Bloomberg

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