GLOBAL MARKETS – Global equities rise amid concerns over the economy; the currency strengthens
Global stock markets rebounded on Friday, with the S&P 500 momentarily falling into bearish territory and the dollar appreciating as investor concerns over the Federal Reserve’s tightening policy to fight inflation stoked fears of a recession. . Early gains on Wall Street were helped by a resurgence in Europe and Asia after China cut a key lending benchmark to support its struggling economy. As authorities aim to cushion the impact of an economic slowdown, China cut its five-year prime rate, which determines mortgage costs, by 15 basis points, a bigger cut than expected. While a late-day rebound prevented the S&P 500 from confirming a bear market, the benchmark fell due to the gloom on Wall Street.
Equity valuations must fall and the expected return on investments, the discount rate, must rise, said Stephen Auth, director of equity investments at Federated Hermes. “The market is starting to digest the idea that this could be a new world where the discount rate for risky assets is no longer zero,” Auth said. “You see all these different areas of the market being pounded at the same time and that has been very unsettling for investors,” he added. The MSCI gauge of stocks in 47 countries closed up 0.37% but still fell for the seventh week in a row, its longest losing streak since the index was launched in 1990.
How long the stock decline will last will depend on when inflation breaks, said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Va. “What really threw off investors this week, myself included, is when you have the types of companies that generally do well in economic weakness, do terribly,” Tuz said, referring to Walmart’s poor results. Inc and Target Corp. The S&P 500 closed 0.01% higher after falling 2.27% at one point or below the level would confirm a bear market – down 20% from its January 3 closing high. The Dow Jones Industrial Average rose 0.03% and the Nasdaq Composite, already in bearish territory, fell 0.3%.
Earlier in Europe, the pan-regional STOXX 600 index rose 0.73%. Yields on US Treasuries fell for a third straight session on worries about the outlook for growth. The yield on the benchmark 10-year bond fell 6.5 basis points to 2.790%. Fed funds futures were firmer, suggesting that the US rates market has pulled back slightly from some of its more extreme rate hike estimates. The rates market has priced in a fed funds rate of 2.783% at the end of next year, down from a current level of 0.83%. It was as high as 2.9% two weeks ago. The day’s gains for the dollar were not enough to erase steep losses earlier in the week that took the greenback away from a five-year high against the common currency, on fears that its months-long rally has been exaggerated.
Markets are anticipating a 38 basis point tightening from the European Central Bank by its July meeting. This suggests that a 25bps move is fully priced in and markets are seeing about a 50/50 chance of an additional 25bps move. Oil prices stabilized, on track for little change for the week as a planned European Union ban on Russian oil balanced concerns that slowing economic growth will hurt demand. U.S. crude futures rose $1.02 to $113.23 and Brent rose 51 cents to settle at $112.55 a barrel. Gold edged higher, heading for its first week of gains in five weeks on lingering concerns over economic growth and the weaker dollar during the week. US gold futures rose 0.1% to $1,842.10. Bitcoin fell 3.36% to $29,272.33.
The dollar has been buoyed in recent months by a flight to safety amid a rout in markets on fears of runaway inflation, a hawkish Fed and war in Ukraine. The dollar index rose 0.146%, with the euro down 0.3% at $1.0554. The Japanese yen weakened 0.09% to 127.92 to the dollar. Eurozone bond yields rose after two days of sharp declines as risk sentiment improved following a rate cut in China. Germany’s 10-year government bond yield rose 0.1 basis points to 0.9450%, below last week’s eight-year high of 1.189%.
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- GLOBAL MARKETS – Global equities rise amid concerns over the economy; the currency strengthens
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