Stocks, Futures Bounce Back; Treasuries Steady: Markets Wrap

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(Bloomberg) — Stocks in Europe rebounded along with US equity futures Friday after a rout triggered by fears of an economic downturn as major central banks close the liquidity taps. Treasury yields were steady and the dollar snapped two days of losses.

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The Stoxx Europe 600 index jumped about 1.1% after hitting its lowest level in more than a year. S&P 500 and Nasdaq 100 contracts climbed more than 1%, signaling steadier sentiment compared with Thursday’s plunge in US shares to the lowest since late 2020. Friday also brings the quarterly event known as triple witching. The $3.5 trillion options expiry may lead to short covering, which could bring temporary relief for the stock market.

Markets are rounding off a week buffeted by interest-rate increases, including the Federal Reserve’s biggest move since 1994, a shock Swiss National Bank hike and the latest boost in UK borrowing costs. The rate hikes are draining liquidity, sparking losses in a range of assets. Global stocks face one of their worst weeks since pandemic-induced turmoil of 2020. The question is how far assets have to sink before the tightening cycle is fully priced in.

“Investors have to ask themselves how long the rate-hiking cycle will go and how deep the economic slowdown will be,” said Michael Strobaek, global chief investment officer at Credit Suisse Group AG, which is overweight equities and recently closed its underweight position in bonds. “Peak hawkishness, i.e. the peak in expectations repricing, might be close. Once we are there, it is not only possible but likely that we will see a rebound in both equities and bonds. However, this rebound will be very difficult to time.”

Italian bonds led a rally in European debt after European Central Bank President Christine Lagarde pledged that borrowing costs of more indebted nations in the euro-area won’t be allowed to spiral out of control. Italy’s 10-year yield fell 20 basis points and German equivalents dropped six basis points.

Japan, meanwhile, retained super-easy monetary policy and yield curve control, defying pressure to track the global trend toward tighter settings. The yen sank and Japan’s 10-year bond yield retreated below the Bank of Japan’s cap of 0.25%, after earlier hitting 0.265%, the highest since 2016. The Swiss franc surged to its highest level against the yen since 1980.

Bitcoin snapped its longest streak of losses in Bloomberg data going back to 2010, climbing back above $21,000. Oil edged higher as traders weighed the prospect of slower economic growth against tight supplies. Gold was on the back foot and heading for a weekly drop.

Key events this week:

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Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 rose 1.1% as of 10:35 a.m. London time

  • Futures on the S&P 500 rose 1%

  • Futures on the Nasdaq 100 rose 1.2%

  • Futures on the Dow Jones Industrial Average rose 0.8%

  • The MSCI Asia Pacific Index fell 1.3%

  • The MSCI Emerging Markets Index fell 0.1%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.5%

  • The euro fell 0.2% to $1.0525

  • The Japanese yen fell 2% to 134.85 per dollar

  • The offshore yuan fell 0.3% to 6.7053 per dollar

  • The British pound fell 0.4% to $1.2298

Bonds

  • The yield on 10-year Treasuries was little changed at 3.20%

  • Germany’s 10-year yield declined eight basis points to 1.64%

  • Britain’s 10-year yield declined seven basis points to 2.44%

Commodities

  • Brent crude rose 0.7% to $120.59 a barrel

  • Spot gold fell 0.4% to $1,850.08 an ounce

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