European and US stock futures fell, Asian shares were mixed and Treasuries extended a rally on Thursday as investors weighed the risks of economic slowdown and the outlook for interest rates.
(Bloomberg) — European and US stock futures fell, Asian shares were mixed and Treasuries extended a rally on Thursday as investors weighed the risks of economic slowdown and the outlook for interest rates.
The two-day drop in the yield on 10-year US government debt reached 22 basis points, putting the rate at the lowest level since mid September, as the close correlation between bonds and stocks snapped.
Hong Kong-listed equities fluctuated, with notable weakness in technology companies, while Japanese shares showed a decisive drop. The fall in Tokyo also reflected upward pressure on the yen after the central bank left policy settings unchanged Wednesday.
Traders were again focused on the benchmark 10-year Japanese government bond yield amid expectations that it may start creeping back to toward the target ceiling of 0.5% after a sharp drop on Wednesday. It popped up by a basis point before slipping down fractionally to 0.405%.
The yen resumed its advance after being whipsawed over the past 24 hours. A gauge of dollar strength traded little changed.
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New Zealand stocks largely shook off news that Prime Minister Jacinda Ardern will step down next month, falling just 0.3%. The nation’s currency was down about the same amount.
Australian stocks erased losses and rallied, while bond yields extended their drop after the nation’s employment unexpectedly fell in December and the jobless rate held unchanged, casting doubt over another interest-rate increase in February.
The advance in Treasuries came as investors scurried to haven assets in a break with a prior dynamic where poor economic news has boosted riskier assets on the belief central banks will slow rate hikes.
Data released Wednesday showed US consumers losing steam and business investment falling, heightening concerns that the economy may be moving closer to recession. Producer prices slid by the most since the start of the pandemic and retail sales fell by the most in a year. This didn’t deter Federal Reserve officials reaffirming the need to continue tightening monetary policy.
“This weakness in equity markets will continue a bit longer in this first quarter of the year as the market reprices what the Fed will do,” said Sailesh Jha, chief economist and head of market research for RHB Banking Group in an interview with Bloomberg Television.
Market pricing for the terminal Fed funds rate fell by more than 50 basis points from a day earlier in a sign investors are anticipating a rapid slowdown to Federal Reserve interest rate hikes. Comments from Fed officials Wednesday, however, repeated calls for more hikes even after further signs the economy was softening and inflation cooling.
St. Louis Fed President James Bullard said policy was not yet in restrictive territory and projected a forecast rate of up to 5.5% by the end of the year in the Fed’s dot plot projections. is “almost” in restrictive territory but not quite. Cleveland Fed President Loretta Mester said the Fed needs “keep going” and Philadelphia Fed chief Patrick Harker repeated his view of lifting interest rates in quarter-point increments “going forward.”
Meanwhile, global bond sales so far this year have reached record levels as companies and governments around the world tap investors to raise hundreds of billions of dollars in capital.
Elsewhere in markets, oil fell for a second day as concerns over a US recession deepened and figures pointed to another build in inventories. Gold edged higher.
Key events this week:
- US housing starts, initial jobless claims, Philadelphia Fed index, Thursday
- ECB account of its December policy meeting and President Christine Lagarde on a panel in Davos, Thursday
- Fed speakers include Susan Collins and John Williams, Thursday
- Japan CPI, Friday
- China loan prime rates, Friday
- US existing home sales, Friday
- IMF’s Kristalina Georgieva and ECB’s Lagarde speak in Davos, Friday
Here are some of the main market moves:
Stocks
- S&P 500 futures fell 0.2% as of 6:55 a.m. London time. the S&P 500 fell 1.6%
- Nasdaq 100 futures fell 0.2%. The Nasdaq 100 fell 1.3%
- Hong Kong’s Hang Seng fell 0.2%
- The Shanghai Composite rose 0.4%
- Japan’s Topix Index fell 1%
- Euro Stoxx 50 futures fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0797
- The Japanese yen rose 0.8% to 127.93 per dollar
- The offshore yuan fell 0.2% to 6.7808 per dollar
- The British pound fell 0.1% to $1.2335
Cryptocurrencies
- Bitcoin rose 0.3% to $20,841.75
- Ether rose 0.2% to $1,531.49
Bonds
- The yield on 10-year Treasuries declined four basis points to 3.33%
- Japan’s 10-year fell half a basis point to 0.405%
- Australia’s 10-year yield declined 22 basis points to 3.32%
Commodities
- West Texas Intermediate crude fell 1% to $78.70 a barrel
- Spot gold rose 0.3% to $1,909.06 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Stephen Kirkland.
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