European stocks and US equity futures were steady as a gauge of global shares headed for a second-straight quarterly gain, underscoring investor optimism in the face of banking turmoil and elevated interest rates.
(Bloomberg) — European stocks and US equity futures were steady as a gauge of global shares headed for a second-straight quarterly gain, underscoring investor optimism in the face of banking turmoil and elevated interest rates.
Consumer-related stocks outperformed and banks retreated as the Stoxx Europe 600 Index edged higher. Contracts on the S&P 500 were little changed as were those on the tech-heavy Nasdaq 100, after the underlying gauge rose 0.9% overnight, pushing further into a bull market. Digital World Acquisition Corp., the blank-check firm taking Donald Trump’s media company public, rallied in premarket after he became the first former president to be indicted. Other Trump-linked stocks also gained.
Technology shares have led the charge globally this quarter, surging 19%, the most since mid 2020. The upbeat tone has been on display this week, with the S&P 500 climbing 0.6% Thursday in its third increase in four days.
On the outlook for rates, all eyes Friday are on the Federal Reserve’s favored gauge of underlying price pressures, the so-called PCE Core Deflator, which is expected to show that high inflation persisted last month. A round of Fed speakers on Thursday suggested more monetary tightening was necessary, even after the collapse of three US banks this month.
The dollar strengthened Friday, trimming some of its declines this month. Treasury yields steadied at the end of a quarter of wild swings. Investors have struggled to adjust for banking collapses and the shifting outlook for interest rates amid high inflation and threats to economic growth. The two-year yield was around 4.13% Friday while the 10-year maturity was about 3.55%.
“The Fed’s preferred measure of inflation could generate some volatility within the fixed income markets if we see any surprises,” economists at Rand Merchant Bank in Johannesburg wrote in a note. “Risks are tilted to the upside, and if the data shows that inflation pressures remained strong in February, the inversion of the US yield could deepen even further.”
Traders also remained on guard for any choppiness amid quarter-end rebalancing from pension funds and options hedging activity. And they continue to debate the extent to which policy makers may cut interest rates this year. Several strategists have said markets are wrong to expect easing by the Fed this this year as the labor market remains robust, though US unemployment claims ticked up for the first time in three weeks.
On Thursday, Boston Fed President Susan Collins said tightening was needed, while Richmond Fed President Thomas Barkin said the Fed can raise rates more if inflation risks persist.
In Europe, Euro-area inflation plunged by the most on record, but a new high for underlying price gains highlighted the tricky task facing the European Central Bank as it decides how far to lift interest rates. Consumer prices rose 6.9% from a year ago in March — down from 8.5% in February and less than the 7.1% median estimate of economists, but core inflation quickened to 5.7%.
The focus among investors is set to shift from worries about high interest rates to concerns about the risks of a recession, and as that happens, US stocks look more attractive than those in Europe, according to strategists at Citigroup Inc.
A team led by Beata Manthey upgraded US stocks to overweight from underweight on Friday as they “perform more defensively than other markets” during earnings recessions. They expect global earnings-per-share to contract 5% in 2023 and say that analysts are likely to slash profit estimates even further.
The strategists cut European stocks ex-UK to neutral after several months of outperformance due to their cyclical nature, and as they lag behind the US leading up to and during earnings recessions.
A recession is a “slam dunk,” strategists at Bank of America Corp. led by Michael Hartnett said, adding that investors should go long big tech as the Fed cuts rates after May. Investor flows into cash gathered pace last in the week to March 29, the strategists said in a note Friday, with $60.1 billion entering money market funds, while $5.2 billion flowed out of global equity funds.
Elsewhere in markets Friday, oil traded near a two-week high. Gold was little changed on Friday, but headed for the biggest monthly increase since July 2020. Bitcoin was set to end its best quarter since March 2021 with a gain of almost 70%.
Key events this week:
- Eurozone CPI, unemployment, Friday
- US consumer income, PCE deflator, University of Michigan consumer sentiment, Friday
- ECB President Christine Lagarde speaks, Friday
- New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.2% as of 10:09 a.m. London time
- S&P 500 futures rose 0.1%
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average rose 0.1%
- The MSCI Asia Pacific Index rose 0.6%
- The MSCI Emerging Markets Index rose 0.5%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.2% to $1.0880
- The Japanese yen fell 0.4% to 133.25 per dollar
- The offshore yuan was little changed at 6.8771 per dollar
- The British pound fell 0.2% to $1.2365
Cryptocurrencies
- Bitcoin fell 1.2% to $27,804.81
- Ether fell 0.3% to $1,790.5
Bonds
- The yield on 10-year Treasuries was little changed at 3.55%
- Germany’s 10-year yield declined four basis points to 2.34%
- Britain’s 10-year yield was little changed at 3.51%
Commodities
- Brent crude fell 0.8% to $78.61 a barrel
- Spot gold fell 0.1% to $1,977.69 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Brett Miller.
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