Government bonds rallied while stock futures struggled for direction as investors hedged the risk that economies would flag under central banks pushing their inflation-fighting zeal and rate-hiking campaigns too far.
(Bloomberg) — Government bonds rallied while stock futures struggled for direction as investors hedged the risk that economies would flag under central banks pushing their inflation-fighting zeal and rate-hiking campaigns too far.
Futures on the S&P 500 fluctuated after the gauge suffered its worst week since March, while yields on benchmark US Treasury yields dropped five basis points. Germany’s 10-year benchmark yield tumbled five basis points as data showed the business outlook deteriorated to the lowest seen this year as Europe’s biggest economy struggles to emerge from recession.
Investors have been growing more anxious that central banks determined to extinguish inflation will keep pushing rates higher and risk breaking fragile economies. Bets that central banks would soon wind down aggressive rate hikes and even pivot to rate cuts have been sharply rebuffed by policymakers from the US to the Norway to the UK. Federal Reserve Chair Jerome Powell last week warned the US may need one or two more rate increases in 2023.
“As central banks remain hawkish on the back of persistent inflationary pressure, the likelihood of a soft landing is falling,” said Andrew McCaffery, global chief investment officer at Fidelity International, in a note published Monday. “Investors should be wary of taking on too much risk at this late stage of the cycle.”
Meanwhile, markets have absorbed the biggest threat to President Vladimir Putin’s almost quarter-century grip on power. Russian officials met key partners, including in China, a day after Yevgeny Prigozhin halted the advance of his Wagner mercenary group toward Moscow.
Oil turned higher, with traders alert to the risk that any prolonged turmoil in Russia could reverberate through global oil markets. The country’s war in Ukraine has already upended trade flows, with major consumers in Asia including China boosting imports of Russian energy.
“This weekend’s happenings make us realize is that it’s important to have geopolitical hedges in the portfolio, so we’ve always had commodities fulfil that role,” Trevor Greetham, head of multi asset at Royal London Asset Management Ltd, said in an interview with Bloomberg TV. “When there is suddenly a big military event, commodity prices can surge and you’ve got that protection.”
Gas traders braced for more market turbulence, with European gas already seeing the highest volatility since the invasion of Ukraine.
In the premarket, Tesla Inc. shares fell 2% after the automaker was downgraded to neutral from buy at Goldman Sachs. Hong Kong-listed shares of Russian aluminum producer United Co. Rusal International PJSC fell almost 9%.
Key events this week:
- US new home sales, durable goods, Conference Board consumer confidence, Tuesday
- ECB President Christine Lagarde speaks at ECB forum in Sintra, Portugal, Tuesday
- China industrial profits, Wednesday
- US wholesale inventories, goods trade balance, Wednesday
- Federal Reserve to unveil results of annual banking industry stress test, Wednesday
- Policy panel with ECB’s Christine Lagarde, Fed Chair Jerome Powell, BOJ’s Kazuo Ueda and BOE’s Andrew Bailey at ECB forum in Sintra, Wednesday
- Sweden rate decision, Thursday
- US GDP, initial jobless claims, Thursday
- Atlanta Fed President Rafael Bostic speaks on the US economic outlook at event in Dublin, Thursday
- China manufacturing PMI, non-manufacturing PMI, Friday
- Eurozone CPI, unemployment, Friday
- Japan unemployment, industrial production, Tokyo CPI, Friday
- US personal income and spending, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were unchanged as of 8:32 a.m. New York time
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average were unchanged
- The Stoxx Europe 600 was little changed
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.2% to $1.0917
- The British pound was little changed at $1.2713
- The Japanese yen rose 0.4% to 143.14 per dollar
Cryptocurrencies
- Bitcoin fell 0.4% to $30,273.9
- Ether fell 1% to $1,875.72
Bonds
- The yield on 10-year Treasuries declined five basis points to 3.68%
- Germany’s 10-year yield declined five basis points to 2.30%
- Britain’s 10-year yield declined six basis points to 4.26%
Commodities
- West Texas Intermediate crude rose 0.5% to $69.48 a barrel
- Gold futures rose 0.6% to $1,941.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Allegra Catelli, Ksenia Galouchko and Jan-Patrick Barnert.
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