Stocks Make Recovery Bid From Policy-Induced Losses: Market Wrap

(Bloomberg) — Global stocks attempted to recover from two weeks of losses sparked by concern that continued policy tightening by the US Fed and other central banks would trigger economic recession and hit companies profits.

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

Euphoria fanned by last week’s softer-than-expected US inflation data has dimmed as central banks have hammered home the message they are in no mood to end their policy-tightening cycles. Federal Reserve officials have signaled interest rates will keep rising until they’re confident inflation has been subdued, while central banks across the globe, including the European Central Bank, have issued hawkish outlooks.

“A lot of factors point toward higher inflation going forward which means central banks, especially the Fed, will continue to be extremely hawkish, probably more so than what the markets are pricing,” Saxo Bank senior strategist Charu Chanana told Bloomberg Television, adding she was also concerned “about what kind of earnings recession we will get next year.”

Yields on US Treasuries edged higher, as did those on UK and German government bonds.

Meanwhile, Morgan Stanley analysts warned the coming earnings recession could prove similar to the 2008/2009 downturn, while in 2023, “price declines for equities will be much worse than what most investors are expecting.”

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On currency markets, the dollar slipped against a basket of currencies, with gains led by the yen which strengthened on speculation that a shift might be on the horizon for Japan’s ultra-easy monetary regime. The yield on Japan’s benchmark five-year note touched the highest level in more than seven years.

If such flexibility does translate into an exit from Japan’s yield-curve control policy or if it suggests a higher target for the 10-year government bond yield, “the markets will absolutely interpret that as bullish yen. In fact, they already are in advance of that,” Sue Trinh, head of macro strategy at Manulife Investment Management, said on Bloomberg Television.

The yen pared gains slightly after a top government spokesman denied the prime minister may seek to revise a decade-old accord with the Bank of Japan to consider adding flexibility to the 2% inflation goal.

Traders are also keeping an eye on a surge of Covid infections in China and a pledge by the nation’s top leaders to focus on boosting the economy next year. That hinted at business-friendly policies, providing further support for the property market while likely scaling back fiscal stimulus.

Hong Kong’s Hang Seng index slipped 0.7% but Beijing’s pledge to revive consumption and the US move to refill strategic crude reserves boosted oil futures, though economic growth fears kept prices on track for a second monthly loss.

Key events this week:

• China loan prime rates, Tuesday

• Bank of Japan interest rate decision, Tuesday

• US housing starts, Tuesday

• EIA Crude Oil Inventory Report, Wednesday

• US existing home sales, US Conference Board consumer confidence, Wednesday

• US GDP, initial jobless claims, US Conf. Board leading index, Thursday

• US consumer income, new home sales, US durable goods, PCE deflator, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

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

• Nasdaq 100 futures rose 0.4%

• Futures on the Dow Jones Industrial Average rose 0.3%

• The Stoxx Europe 600 rose 0.4%

• The MSCI World index was little changed

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 $1,181.08

Bonds

• The yield on 10-year Treasuries advanced three basis points to 3.51%

• Germany’s 10-year yield advanced three basis points to 2.18%

• Britain’s 10-year yield advanced five basis points to 3.38%

Commodities

• 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 produced with the assistance of Bloomberg Automation.

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