(Bloomberg) — Stocks in Europe and US futures posted modest gains Thursday as investors assessed hawkish messages from central bankers over their quest to rein in inflation and a retreat in oil prices.
Europe’s Stoxx 600 Index rose 0.4%, with construction and consumer shares leading gains, while energy stocks were laggards. UK markets are shut for holidays to mark Queen Elizabeth II’s Platinum Jubilee. S&P 500 contracts and those on the Nasdaq 100 were both about 0.3% higher. An MSCI Inc. gauge of Asia-Pacific shares retreated for a second day, with Hong Kong leading declines amid tough virus curbs.
US manufacturing activity and job openings data fueled concern the Federal Reserve will need to get more restrictive to slow runaway price gains. Treasuries held losses, with 10-year yields above 2.90%. Traders raised bets on the path for rate hikes and the Fed started its balance-sheet reduction process. The dollar slipped while the yen held near 130 per dollar after its recent decline on the prospect of widening interest rate differentials with the US.
Crude oil slid on a report that Saudi Arabia is ready to pump more oil if Russian output declines. OPEC+ is scheduled to meet to discuss supply policy.
JPMorgan Chase & Co.’s Jamie Dimon sounded alarm bells on the economy. Dimon warned investors to prepare for an economic “hurricane.” In contrast, JPMorgan’s bullish strategist, Marko Kolanovic, expects stocks to rebound by the end of the year, underscoring the increasing debate as markets are buffeted by challenges from tightening monetary policy to the war in Ukraine.
Investors are on edge over whether the Fed’s tighter policies will induce a recession. A chorus of Fed officials has fallen behind calls to keep hiking to counter price pressures. Mary Daly of the San Francisco Fed and her more hawkish colleague James Bullard of St. Louis both backed a plan to raise rates by 50 basis points this month, while Richmond’s Thomas Barkin said it made “perfect sense” to tighten policy.
“We do see the rise in probability of a recession in the second half of this year, potentially persisting into 2023 as the Fed continues to battle inflation,” Tracie McMillion, Wells Fargo Investment Institute head of global asset allocation strategy, said on Bloomberg Television.
McMillion also cautioned that markets haven’t fully priced in the impact of the Fed’s balance-sheet reduction. “The impact of quantitative tightening starting to roll off the Fed’s balance sheet this month is really untested and unprecedented. Our guess is that it’s probably not fully priced into markets,” she said.
Chinese stocks outperformed. Beijing ordered state-owned policy banks to set up an 800 billion yuan ($120 billion) line of credit for infrastructure projects as it leans on construction to stimulate an economy battered by coronavirus lockdowns.
How will markets be affected by the Fed’s quantitative tightening? QT officially starts Wednesday and is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.
Here are some key events to watch this week:
- Cleveland Fed President Loretta Mester discusses the economic outlook Thursday
- US May employment report Friday
- The UN’s Food and Agriculture Organization releases its monthly food price index at a time of maximum concern about global supplies on Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 rose 0.4% as of 8:18 a.m. London time
- Futures on the S&P 500 rose 0.2%
- Futures on the Nasdaq 100 rose 0.3%
- Futures on the Dow Jones Industrial Average rose 0.2%
- The MSCI Asia Pacific Index fell 0.8%
- The MSCI Emerging Markets Index fell 0.8%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.3% to $1.0678
- The Japanese yen rose 0.1% to 129.96 per dollar
- The offshore yuan rose 0.2% to 6.6865 per dollar
- The British pound rose 0.3% to $1.2529
Bonds
- The yield on 10-year Treasuries was little changed at 2.91%
- Germany’s 10-year yield advanced one basis point to 1.20%
Commodities
- Brent crude fell 1.7% to $114.32 a barrel
- Spot gold rose 0.3% to $1,851.22 an ounce
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