Stocks Rise With Yields as Fed Messages Digested: Markets Wrap

(Bloomberg) — European stocks rose and US index futures pointed to a stronger open on Wall Street after two days of losses triggered by Federal Reserve signals that interest rates would continue to rise for a while yet.

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Europe’s Stoxx index rose 0.8%, led by energy, banking and utilities, though shares stayed on track to snap a four-week rising streak. While the US S&P 500 index is down 1% so far this week, index futures on the benchmark gained 0.3%. Nasdaq contracts also advanced, while in New York premarket trading, chip equipment maker Applied Materials rose 4.1% after issuing a forecast-topping sales forecast. A host of tech names, including Nvidia Corp., Meta Platforms Inc. and Amazon.com Inc., also gained.

The moves come a day after shares were knocked sharply lower by hawkish comments from St. Louis Fed President James Bullard, who said interest rates needed to rise at least to 5%-5.25% to curb inflation. His comments prompted markets to dial up their expectations for how high US rates might go.

The dollar retreated while Treasury yields extended their surge in the wake of Bullard’s comments. But Bullard is only the latest policymaker to warn markets that while inflation appears to be easing off multi-decade highs, policy needs to be tightened further to tame price pressures.

However, some investors said hawkish commentary did not necessarily mean rates would peak at higher levels than previously thought.

“The Fed wants to ensure their job is not getting undone, the language is still robust and that there’s still a coordinated effort from board members to push on the hawkish button,” James Athey, investment director at Abrdn Investment Management Ltd. told Bloomberg Television. “That doesn’t mean the destination is necessarily a higher rate than where markets thought a week or two ago. I think they’re just trying to downplay investor’s spirits a bit.”

Fears are mounting though, that relentlessly rising rates will hit economic growth, with a critical segment of the Treasury yield curve at the most steeply inverted in four decades — historically such an inversion has flagged recession in the world’s largest economy. Growth-sensitive copper and oil prices were poised for weekly losses, pressured by concerns over a worsening demand outlook.

Ellen Hazen, chief market strategist at F.L.Putnam Investment Management, said that if the Fed kept increasing rates at the current pace, “by the time they get the information that they’ve been successful in slowing the economy and slowing inflation, it might be too late.”

“It’s just too soon to know exactly how this is going to play through the economy and that’s the biggest risk,” she told Bloomberg Television.

Still, the dollar’s retreat allowed other major currencies to strengthen, with the Japanese yen getting some additional impetus from data showing inflation at 40-year highs. The pound attempted to recoup Thursday’s losses as investors assessed the fallout from the government budget on an economy that’s already in recession.

Earlier, Hong Kong’s benchmark Hang Seng Index enjoyed a third straight week of gains, thanks to China’s steps to support the property sector and ease Covid restrictions. On Friday, the benchmark’s tech gauge touched a two-month high, led by Alibaba, which missed second-quarter revenues but upsized share buybacks.

Bitcoin was on course for a weekly gain even as the collapse of Sam Bankman-Fried’s FTX empire continues to rattle the crypto market.

Key events this week:

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 rose 0.8% as of 10:08 a.m. London time

  • Futures on the S&P 500 rose 0.3%

  • Futures on the Nasdaq 100 rose 0.4%

  • Futures on the Dow Jones Industrial Average rose 0.2%

  • The MSCI Asia Pacific Index rose 0.3%

  • The MSCI Emerging Markets Index was little changed

Currencies

  • The Bloomberg Dollar Spot Index fell 0.1%

  • The euro was little changed at $1.0372

  • The Japanese yen rose 0.2% to 139.93 per dollar

  • The offshore yuan rose 0.3% to 7.1268 per dollar

  • The British pound rose 0.5% to $1.1922

Cryptocurrencies

  • Bitcoin rose 0.5% to $16,764.29

  • Ether rose 1% to $1,217.45

Bonds

  • The yield on 10-year Treasuries advanced three basis points to 3.80%

  • Germany’s 10-year yield advanced five basis points to 2.07%

  • Britain’s 10-year yield advanced six basis points to 3.26%

Commodities

  • Brent crude rose 0.1% to $89.87 a barrel

  • Spot gold rose 0.2% to $1,764.83 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Tassia Sipahutar.

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