Stocks Make Recovery Bids From Policy-Induced Losses: Market Turnaround

(Bloomberg) — Global stocks attempted to recover from two weeks of losses, fueled by concerns that continued policy tightening by the US Fed and other central banks would trigger an economic recession and depress corporate earnings.

Most read from Bloomberg

Europe’s Stoxx 600 index opened half a percent higher, while US futures pointed to gains for the S&P 500 and tech-heavy Nasdaq 100, though both indices are on track to finish the month lower after rallying in October and November . An Asian equity benchmark earlier fell for a third day, the longest losing streak in almost two months.

The euphoria fueled by last week’s softer-than-expected US inflation data has abated as central banks have hammered out the message that they are in no mood to end their policy-tightening cycles. Federal Reserve officials have indicated that interest rates will continue to rise until they are confident inflation is under control, while central banks around the world, including the European Central Bank, have issued hawkish forecasts.

“Many factors point to higher inflation going forward, which means that central banks, especially the Fed, will continue to be extremely aggressive, probably more than what the markets are pricing,” Saxo Bank senior strategist Charu Chanana told Bloomberg Television. was also concerned “about what kind of earnings recession we’re going to have next year.”

Yields on US government bonds rose slightly higher, as did those on UK and German government bonds.

Meanwhile, analysts at Morgan Stanley warned that the upcoming earnings recession could be similar to the 2008/2009 recession, while in 2023 “price declines for stocks will be much worse than what most investors expect”.

In foreign exchange markets, the dollar fell against a basket of currencies, with gains led by the yen, which strengthened on speculation that a shift could be imminent for Japan’s ultra-easy monetary regime. Yields on the Japanese benchmark five-year bond hit the highest level in more than seven years.

If such flexibility translates into Japan abandoning policy to control the yield curve or suggesting a higher target for 10-year Treasury yields, “markets will absolutely interpret that as bullish yen. In fact, they are already ahead of that,” said Sue Trinh, head of macro strategy at Manulife Investment Management, on Bloomberg Television.

The yen fell slightly after a top government spokesman denied that the prime minister could try to revise a decade-old deal with the Bank of Japan to consider adding flexibility to the 2% inflation target.

Traders are also eyeing a spate of Covid infections in China and a pledge from the country’s top leaders to focus on boosting the economy next year. This signaled business-friendly policies, which continued to support the real estate market while likely tapering off fiscal stimulus.

Hong Kong’s Hang Seng index fell 0.7%, but Beijing’s commitment to boost consumption and US action to replenish strategic crude reserves boosted oil futures, though economic fears growth kept prices on track for a second monthly loss.

Main events this week:

  • China loan first interest rates, Tuesday

  • Bank of Japan interest rate decision, Tuesday

  • US housing starts, Tuesday

  • EIA Crude Oil Inventory Report, Wednesday

  • U.S. Existing Home Sales, Consumer Confidence in the U.S. Conference Board, Wednesday

  • US GDP, First Jobless Claims, US Conf. Board leading index, Thursday

  • US Consumer Income, New Home Sales, US Durable Goods, PCE Deflator, University of Michigan Consumer Confidence, Friday

Some of the major movements in markets:

Shares

  • S&P 500 futures are up 0.3% as of 3:35 a.m. New York time

  • Nasdaq 100 futures up 0.4%

  • Futures on the Dow Jones Industrial Average rose 0.3%

  • The Stoxx Europe 600 rose 0.4%

  • The MSCI World Index changed little

Currencies

  • The Bloomberg Dollar Spot Index fell 0.4%

  • The euro rose 0.5% to $1.0640

  • The British pound rose 0.4% to $1.2202

  • The Japanese yen rose 0.5% to 135.96 per dollar

Cryptocurrencies

  • Bitcoin was little changed at $16,744.5

  • Ether fell 0.1% to USD 1,181.08

Bonds

  • The 10-year Treasury yield rose three basis points to 3.51%

  • German 10-year yields rose three basis points to 2.18%

  • UK 10-year yields rose five basis points to 3.38%

Raw materials

  • West Texas Intermediate crude fell 0.5% to $73.95 a barrel

  • Gold futures rose 0.4% to $1,807.90 an ounce

This story was created with the help of Bloomberg Automation.

Most read from Bloomberg Businessweek

©2022 Bloomberg LP

Leave a Reply

Your email address will not be published. Required fields are marked *