European stocks climbed along with US equity-index futures as investors weighed the risk of recession and its impact on interest rates.
(Bloomberg) — European stocks climbed along with US equity-index futures as investors weighed the risk of recession and its impact on interest rates.
The Stoxx Europe 600 index advanced more than 1%, led by bank stocks as concern about the sector eased after an uneventful weekend. Contracts on the S&P 500 rose 0.6%. An Asian gauge swung between gains and losses, weighed down by Hong Kong stocks.
Treasuries dipped, with the 10-year yield rising about four basis points and the more rate-sensitive two-year rate jumping almost 12 basis points. Bonds in Europe also fell, with the German 10-year yield up seven basis points. A gauge of dollar strength was little changed.
Traders are in for another bumpy week, with developments in the banking sector closely watched. On top of that, multiple Federal Reserve officials will speak, a key measure of US inflation is due and there are renewed geopolitical tensions with Russia to station tactical nuclear weapons in Belarus. Fed Minneapolis President Neel Kashkari said over the weekend that bank turmoil had increased the risk of a US recession.
Authorities are said to be considering expanding an emergency lending facility for US banks in ways that would give First Republic Bank more time to shore up its balance sheet. Yet investors in the bond market already see the wider damage in the sector running its course. They piled into wagers last week that a recession is around the corner, axingbets on any further tightening and ramping up bets for rate cuts.
In the US stock market Friday, after a slide that reached 1% in the first hour of trading, the S&P 500 snapped back and notched its second straight week of gains. A gauge of US financial heavyweights climbed from its lowest level since November 2020.
“The recent banking crisis has heightened fears of a recession,” Ed Yardeni, president and chief investment strategist of his eponymous research firm, said in a Monday note. Still, Yardeni has not increased the odds of recession despite the pressure facing lenders and places a 60% probability of a soft landing. “We’re not convinced it will lead to a credit crunch that triggers a recession.”
Top US regulators said after a meeting Friday that while some banks are coming under stress, the overall financial system is still sound. First Citizens Bank & Trust on Monday agreed to buy all deposits and loans of SVB Financial Group’s Silicon Valley Bank after it was seized by the regulators.
Investors will be closely watching data on personal consumption expenditures price index, which is the Fed’s preferred measure of underlying price pressure, that will come out later this week for direction on the US central bank’s rate path.
“Market continues to price in about 100 basis points of rate cuts for this year, defying the Fed’s latest dot plot projections,” Saxo Capital Markets strategists, including Charu Chanana, wrote in a note.
Elsewhere, oil was slightly higher after a weekly gain. Gold fell.
Key events this week:
- US wholesale inventories, US Conf. Board consumer confidence, Tuesday
- EIA Crude Oil Inventory Report, Wednesday
- Eurozone economic confidence, consumer confidence, Thursday
- US GDP, initial jobless claims, Thursday
- Boston Fed President Susan Collins and Richmond Fed President Thomas Barkin speaks at event. Treasury Secretary Janet Yellen also speaks, Thursday
- China PMI, Friday
- 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 1.1% as of 8:11 a.m. London time
- S&P 500 futures rose 0.4%
- Nasdaq 100 futures rose 0.2%
- Futures on the Dow Jones Industrial Average rose 0.5%
- The MSCI Asia Pacific Index fell 0.4%
- The MSCI Emerging Markets Index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.0773
- The Japanese yen fell 0.4% to 131.21 per dollar
- The offshore yuan fell 0.2% to 6.8792 per dollar
- The British pound rose 0.2% to $1.2256
Cryptocurrencies
- Bitcoin was little changed at $27,825.01
- Ether fell 0.4% to $1,754.78
Bonds
- The yield on 10-year Treasuries advanced three basis points to 3.41%
- Germany’s 10-year yield advanced seven basis points to 2.20%
- Britain’s 10-year yield advanced five basis points to 3.34%
Commodities
- Brent crude rose 0.9% to $75.70 a barrel
- Spot gold fell 0.4% to $1,969.35 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson.
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