(Bloomberg) — US futures and European stocks climbed Thursday as a drop in oil prices eased some investor concerns about inflation and stirred interest in attractively valued equities.
S&P 500 contracts climbed 0.5% and those on the Nasdaq 100 were 0.6% higher. Europe’s Stoxx 600 Index rose, with construction and consumer shares leading gains, while energy stocks were laggards. Trading volumes are lighter than usual, with UK markets shut for holidays to mark Queen Elizabeth II’s Platinum Jubilee. Among individual moves, Remy Cointreau SA gained after the spirits maker forecast solid sales growth.
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.
Oil’s decline helped to steady sentiment after US manufacturing activity and job openings data Wednesday 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%. 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.
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon sounded alarm bells on the economy, warning 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.
“There’s been a large correction in some stocks; those corrections led to valuations that are way more attractive that can benefit medium-to long-term investors, especially in Europe and the emerging-markets space,” Vanguard Asset Services Ltd. Investment Strategist Giulio Renzi Ricci said on Bloomberg TV.
Investors are on edge over whether the US central bank’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.
In US premarket trading, Chewy Inc. rallied after the online pet products retailer’s results topped analyst expectations. Hewlett Packard Enterprise Co. slid after the company cut its full-year profit forecast.
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
- Futures on the S&P 500 rose 0.5% as of 6:15 a.m. New York time
- Futures on the Nasdaq 100 rose 0.6%
- Futures on the Dow Jones Industrial Average rose 0.4%
- The Stoxx Europe 600 rose 0.5%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.4% to $1.0690
- The British pound rose 0.5% to $1.2546
- The Japanese yen rose 0.3% to 129.80 per dollar
Bonds
- The yield on 10-year Treasuries advanced one basis point to 2.92%
- Germany’s 10-year yield advanced three basis points to 1.22%
Commodities
- West Texas Intermediate crude fell 2.4% to $112.45 a barrel
- Gold futures rose 0.5% to $1,857.60 an ounce
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