Stocks rise on yields as Fed messages digest: Markets fold

Stocks rise on yields as Fed messages digest: Markets fold

(Bloomberg) — European stocks rose and U.S. index futures pointed to a stronger opening on Wall Street after two days of losses that prompted the Federal Reserve to keep raising interest rates for a while longer.

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Europe’s Stoxx index rose 0.8 percent, led by the energy, banks and utilities sector, although shares remained on track to snap a four-week winning streak. While the US S&P 500 is down 1% so far this week, benchmark index futures are up 0.3%. Nasdaq futures also advanced, while in early New York trade, chip equipment maker Applied Materials rose 4.1 percent after issuing forecasts for better-than-expected sales. A host of tech names, including Nvidia Corp., Meta Platforms Inc. and Amazon.com Inc., also won.

The moves come a day after stocks fell sharply on dovish comments from St. Louis, James Bullard, who said interest rates need to rise to at least 5%-5.25% to curb inflation. His comments prompted markets to reverse their expectations of how high US interest rates could go.

The dollar fell while bond yields extended their gains after Bullard’s comments. But Bullard is just the latest policymaker to warn markets that while inflation appears to be receding from multi-decade highs, policy needs to tighten further to ease price pressures.

But some investors said the hawkish comments did not necessarily mean interest rates would peak higher than previously thought.

“The Fed wants to make sure its work is not undone, the language is still strong and there is still a concerted effort by board members to push the hawkish button,” James Athey, chief investment officer at the Fed, told Bloomberg Television. Abrdn Investment Management Ltd. . “That doesn’t mean the destination is necessarily higher than the markets thought a week or two ago. I think they’re just trying to dampen the spirits of investors a little bit.”

But fears are mounting that relentlessly rising interest rates will hurt economic growth, with a crucial part of the Treasury yield curve the steepest inversion in four decades — such an inversion has historically signaled recession in its largest economy world. Growth-sensitive copper and oil prices were poised for weekly losses, weighed down by concerns about a worsening demand outlook.

Ellen Hazen, chief market strategist at FLPutnam Investment Management, said that if the Fed continued to raise interest rates at the current rate, “by the time they get the message that they’ve been able to slow down the economy and slow down inflation, they might be too late.”

“It’s too early to know exactly how this will play out in the economy, and that’s the biggest risk,” he told Bloomberg Television.

However, the dollar’s retreat allowed other major currencies to strengthen, with the Japanese yen getting some extra boost from data showing inflation at 40-year highs. The pound tried to claw back Thursday’s losses as investors gauged the impact of the government budget on an economy already in recession.

Earlier, Hong Kong’s benchmark Hang Seng index posted gains for a third week in a row, thanks to China’s steps to support its property sector and ease Covid restrictions. On Friday, the benchmark technology index hit a two-month high, led by Alibaba, which missed second-quarter revenue but boosted share buying.

Bitcoin was on track 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 movements in the markets:

inventories

  • The Stoxx Europe 600 was up 0.8% at 10:08 am. London time

  • S&P 500 futures rose 0.3%

  • Nasdaq 100 futures rose 0.4%

  • Dow Jones Industrial Average futures rose 0.2%

  • MSCI Asia Pacific rose 0.3%

  • The MSCI Emerging Markets index was little changed

currency

  • The Bloomberg Dollar Spot index fell 0.1%

  • The euro fell slightly to $1.0372

  • The Japanese yen rose 0.2% to 139.93 yen per dollar

  • The offshore yuan was up 0.3% at 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

Bindings

  • The 10-year bond yield rose three basis points to 3.80%

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

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

Goods

  • Brent crude rose 0.1% to $89.87 a barrel

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

This story was created with help from Bloomberg Automation.

–With help from Tassia Sipahutar.

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