US Futures Gain, Bonds Decline Before Price Data: Markets Wrap

US equity futures gained as the second quarter drew to a close, while Treasuries extended a selloff sparked by robust US economic growth and jobs data that fueled bets on more interest rate hikes.

(Bloomberg) — US equity futures gained as the second quarter drew to a close, while Treasuries extended a selloff sparked by robust US economic growth and jobs data that fueled bets on more interest rate hikes. 

The Treasury two-year yield rose about six basis points to 4.93%, extending Thursday’s 16-point jump. The 10-year yield increased four points to its highest level since mid-March. Swap markets now indicate a nearly 50% chance of a second US hike by year-end. 

Those wagers will be tested by US price measures due Friday, including figures on personal income and spending as well as the PCE deflator, the Federal Reserve’s preferred gauge of underlying inflation pressures. The numbers are expected to show some softening while still indicating inflation remains sticky.

“Markets are still really caught up in the ‘strong data’ narrative,” said James Rossiter, head of global macro strategy at TD Securities. “But ultimately the Fed’s going to be focused on where inflation is right now. It’s going to be a more difficult decision for them in July, especially given how much tightening they’ve already put in the system that still has to play out.”

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Contracts for the S&P 500 were modestly higher as the underlying gauge closes out a third straight quarterly gain. Nike Inc. fell in pre-market trading after the sportswear maker’s outlook for the full year failed to win over Wall Street. Nasdaq 100 futures rose 0.5%, indicating the index is set to extend its 37% surge since the start of the year. 

Yields on European bonds retreated from session highs and the euro pared a decline after data showed euro-area inflation slowed more than economists’ expectations in June. Core prices re-accelerated, though, in a setback for the European Central Bank that may reinforce its determination to raise interest rates next month

The Stoxx Europe 600 index climbed about 0.8%, on track to end the quarter flat after failing to build on its 7.8% first-quarter gain. Energy companies led the advance as crude oil rallied. Among individual movers, Engie SA rose after the French utility raised its full-year earnings forecast. ASML Holding NV dropped after the Dutch chipmaker was slapped with more restrictions on exports to China. 

A gauge of global equities, meanwhile, headed for a quarterly rise of 4.5%, defying rising interest rates and the risk of recessions in major economies.

Yen Fluctuates

The yen lit up the currency market, weakening through the closely watched 145 level versus the dollar for the first time since November. It retraced to around 144.70 after Finance Minister Shunichi Suzuki told reporters the government would respond appropriately to any excessive moves in the currency market.

The offshore yuan remained in the spotlight after the recent slide to its lowest level in seven months. It appreciated Friday, for the first time in three days, after the People’s Bank of China again set the daily reference rate for currency at a level stronger than the average estimate in a Bloomberg survey.

The currency is down almost 5% against the dollar this year, prompting extra scrutiny from Chinese regulators, according to people familiar with the matter. Purchasing managers’ index data from China on Friday underscored concern that the economy is losing steam, bolstering calls for more policy support. 

Thursday’s readings on US jobless claims and the gross domestic product showed the world’s biggest economy was in better shape than many had envisioned at the start of 2023.

After the data came out, the US yield-curve inversion intensified — with longer-dated yields rising less than shorter-maturity ones. That means the economy may look stronger now, but investors expect the Fed’s rate increases to curb future growth, which could boost the risk of a recession down the road.

Elsewhere in markets, oil gained as a traders weighed a hawkish rate outlook against positive signals from the US economy. The commodity remains on track for the worst run of quarterly losses in three decades. 

Key events this week:

  • US personal income and spending, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 rose 0.8% as of 10:11 a.m. London time
  • S&P 500 futures rose 0.3%
  • Nasdaq 100 futures rose 0.4%
  • Futures on the Dow Jones Industrial Average rose 0.1%
  • The MSCI Asia Pacific Index was little changed
  • The MSCI Emerging Markets Index was little changed

Currencies

  • The Bloomberg Dollar Spot Index was little changed
  • The euro fell 0.2% to $1.0842
  • The Japanese yen was little changed at 144.68 per dollar
  • The offshore yuan fell 0.1% to 7.2759 per dollar
  • The British pound was little changed at $1.2621

Cryptocurrencies

  • Bitcoin rose 1.3% to $30,792.78
  • Ether rose 2% to $1,886.63

Bonds

  • The yield on 10-year Treasuries advanced four basis points to 3.88%
  • Germany’s 10-year yield advanced two basis points to 2.44%
  • Britain’s 10-year yield advanced five basis points to 4.43%

Commodities

  • Brent crude rose 1.1% to $75.19 a barrel
  • Spot gold fell 0.3% to $1,903.09 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Ksenia Galouchko, Tassia Sipahutar and Anchalee Worrachate.

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