US index futures advanced as investors weighed the possibility of a peak in Treasury yields against concern that hawkish policies by global central banks will spark a recession.
(Bloomberg) — US index futures advanced as investors weighed the possibility of a peak in Treasury yields against concern that hawkish policies by global central banks will spark a recession.
December contracts on the S&P 500 Index rose 0.6%, while similar futures on the Nasdaq 100 added 0.3%. Treasuries rallied, with the two-year and 10-year rates shedding at least 12 basis points each. Oil jumped on signals the OPEC+ alliance may opt for a production cut. Credit Suisse Group AG’s shares hit record low in Zurich as traders continued to speculate about its future. Carmaker Tesla tumbled 4.8% in premarket New York trading after deliveries in the third quarter fell short of expectations.
Global markets remain nervous about the potential impact of monetary tightening on the economy after central banks, including the Federal Reserve, reiterated their resolve to contain runaway inflation. Traders cut back on their bets for Fed rate hikes, pricing in a peak in the Fed Funds Rate by March. They now await US jobs data later this week for further clues on the path of the economy and Fed policy.
“Financial conditions have tightened a lot,” said Colin Asher, a senior economist at Mizuho Bank Ltd. in London. “Because inflation is so high central banks will be wary of declaring victory just yet. But toward the end of last week, there were some signs that US interest rates may be peaking. Quite a lot is priced in.”
Inflation fears were further stoked by a renewed surge in oil prices, with West Texas Intermediate oil trading near $83 a barrel on indications that the OPEC+ alliance was considering slashing production by more than 1 million barrels a day when it meets this week.
Concern is also growing that central-bank policy tightening risks sending the global economy into recession and hitting corporate profits. EV maker Tesla offered a reminder of those risks, sliding after third-quarter deliveries fell short of expectations. Shares of fellow EV makers also came under pressure on fears that supply-chain snarls would dampen their efforts to ramp up production.
Treasuries advanced, recouping some of the losses sustained late Friday. The 10-year rate shed 12 basis points, while two-year yields slipped almost 13 basis points.
In Europe, stocks trimmed losses as energy shares advanced. The pound traded higher after Chancellor of the Exchequer Kwasi Kwarteng withdrew a proposal to abolish the top 45% tax rate.
The other big focus was Switzerland’s Credit Suisse Group AG, which slumped more than 11% as speculation mounted about the company’s future and its requirement for fresh capital. The cost of insuring against exposure to the company surged to a record high as investors shrugged off Chief Executive Officer Ulrich Koerner’s efforts to calm the market.
Brazil’s dollar bonds gained after the nation’s presidential election headed for a run-off vote on Oct. 30. The yield on debt due 2031 fell 19 basis points to 6.45%, poised for the lowest since Sept. 23. The Lyxor MSCI Brazil ETF in Paris jumped the most since July 7.
Investors now await this week’s US jobs data for further clues about the Fed’s rate-hike trajectory. Central banks in Australia and New Zealand, considered bellwethers for developed market peers, are expected to extend their tightening cycles and raise rates by 25 basis points and 50 basis points respectively, according to Bloomberg Economics.
Key events this week:
- US construction spending, ISM Manufacturing, light vehicle sales, Monday
- Fed’s Raphael Bostic, John Williams speak at events, Monday
- Euro-area and EU finance ministers meet, Monday
- Eurozone PPI, Tuesday
- US factory orders, durable goods, Tuesday
- Fed’s John Williams, Lorie Logan, Loretta Mester, Mary Daly speak at events, Tuesday
- Eurozone services PMIs, Wednesday
- OPEC+ meeting begins, Wednesday
- Fed’s Raphael Bostic speaks, Wednesday
- Eurozone retail sales, Thursday
- US initial jobless claims, Thursday
- Fed’s Charles Evans, Lisa Cook, Loretta Mester speak at events, Thursday
- US unemployment, wholesale inventories, nonfarm payrolls, Friday
- BOE Deputy Governor Dave Ramsden speaks at event, Friday
- Fed’s John Williams speaks at event, Friday
Key market moves:
Stocks
- Futures on the S&P 500 rose 0.6% as of 8:07 a.m. New York time
- Futures on the Nasdaq 100 rose 0.3%
- Futures on the Dow Jones Industrial Average rose 0.8%
- The Stoxx Europe 600 was little changed
- The MSCI World index fell 0.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.4% to $0.9763
- The British pound rose 0.4% to $1.1214
- The Japanese yen was little changed at 144.88 per dollar
Cryptocurrencies
- Bitcoin was little changed at $19,225.42
- Ether fell 0.5% to $1,296.43
Bonds
- The yield on 10-year Treasuries declined 12 basis points to 3.71%
- Germany’s 10-year yield declined 10 basis points to 2.01%
- Britain’s 10-year yield declined 14 basis points to 3.95%
Commodities
- West Texas Intermediate crude rose 4.4% to $82.99 a barrel
- Gold futures rose 0.1% to $1,674.10 an ounce
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