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U.S. Equity Futures Rise; Dollar Extends Rally: Markets Wrap

By Isabelle Lee and Robert Brand

U.S. markets are ending a tough week on a negative note as losses in stocks and Treasuries deepened following earlier declines sparked by the Federal Reserve’s plan for aggressive monetary-policy tightening.

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The S&P 500 slid on the last day of a down week for equities after the U.S. central bank outlined plans to pare its balance sheet by more than $1 trillion a year alongside interest-rate hikes. Treasuries fell, with investors closely watching for a reversal in curve steepening seen in the wake of the Fed minutes Wednesday.

“The Fed aims to tamp down inflation without igniting a recession; investors are skeptical, but we expect inflation will moderate later this year, bringing the doves back,” Ed Yardeni, president of Yardeni Research, said in a note.

A dollar gauge extended its rally to a seventh day, hovering at its highest level since July 2020. Oil was steady after three days of losses stoked by plans to release millions of barrels of crude from strategic reserves and China’s demand-sapping virus outbreak. 

Meanwhile, the Stoxx Europe 600 index climbed 0.9% as investors took advantage of beaten-down stock valuations. Banks outperformed, with Banco BPM SpA surging after Credit Agricole SA bought a 9.2% stake in the Italian lender.

Global equities are nursing losses for the week as markets grapple with the Fed’s campaign against elevated price pressures, Russia’s grinding war in Ukraine and China’s Covid travails. The lockdown in Shanghai — which recorded more than 21,000 new daily virus cases — has become one of President Xi Jinping’s biggest challenges. Expectations are growing that China will take steps to support its economy.

“Stocks have had a little bit of a harder time this week digesting the fact that interest rates are going to be higher” amid a major shift in expectations around monetary policy, Anthony Saglimbene, global market strategist at Ameriprise Financial Inc., said on Bloomberg Television.

Yield Curve

The steepening in the Treasury yield curve contrasts with the flattening and inversions that have vexed markets this year. The two-year rate topped the 10-year last week for the first time since 2019, a possible warning of recession.

“We’re seeing a tactical re-steepening right now but the curve is going to continue to flatten,” Kelsey Berro, fixed income portfolio manager at JPMorgan Asset Management, said on Bloomberg Television. “That’s because the Fed has told us, we’d like to get to neutral expeditiously. On top of that, they may need to tighten beyond neutral. Front-end yields can still go higher.”

Meanwhile, U.S. officials warned the war in Ukraine may last for weeks or even years. European Union countries agreed to ban coal imports from Russia, the first time the bloc’s sanctions have targeted Moscow’s crucial energy revenues. Global food prices are surging at the fastest pace ever as the war in Ukraine chokes crop supplies, piling more inflationary pain on consumers and worsening a global hunger crisis.

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Some of the main moves in markets:

Stocks

  • The S&P 500 fell 0.5% as of 9:56 a.m. New York time
  • The Nasdaq 100 fell 1.4%
  • The Dow Jones Industrial Average fell 0.2%
  • The Stoxx Europe 600 rose 0.9%
  • The MSCI World index fell 0.4%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.4%
  • The euro fell 0.4% to $1.0837
  • The British pound fell 0.7% to $1.2985
  • The Japanese yen fell 0.5% to 124.58 per dollar

Bonds

  • The yield on 10-year Treasuries advanced four basis points to 2.70%
  • Germany’s 10-year yield advanced two basis points to 0.70%
  • Britain’s 10-year yield advanced four basis points to 1.77%

Commodities

  • West Texas Intermediate crude rose 0.2% to $96.21 a barrel
  • Gold futures rose 0.3% to $1,943.50 an ounce

More stories like this are available on bloomberg.com.

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