Stocks, Futures Gain as Rate-Hike Bets Scaled Back: Markets Wrap

(Bloomberg) -- The technology sector spurred a climb in stocks Friday as investors evaluated economic threats and scaled back expectations for inflation and interest-rate hikes.

The Stoxx Europe 600 rose 1.5%, with the benchmark set for a small bounce this week. Tech-heavy Nasdaq 100 futures added 1% while contracts on the S&P 500 gained 0.9%, after the main US stock gauge closed near session highs Thursday, adding more than 3% in three days.

Investors are grappling with the question of what comes next if an economic downturn takes hold. One scenario comprises cooling price pressures and hence scope for central banks to ease up on the pace of interest-rate hikes. Federal Reserve Chair Jerome Powell hardened his resolve to cool inflation in testimony to lawmakers this week, after acknowledging that a recession may be the price to pay.

“In spite of the hawkish remarks from Fed officials, the growing worries that their hikes would trigger a recession actually meant that investors priced in a shallower pace of rate hikes over the coming 12-18 months,” Deutsche Bank AG strategists led by Jim Reid wrote in a note. “That had a knock-on impact on Treasuries.”

The prospect of a peak in rates put the policy-sensitive US two-year yield on course for one of its biggest weekly drops since March 2020. Traders are starting to price out any Fed action on rates beyond the December meeting, scaling back the additional tightening they expect and flirting with the possibility of cuts by in 2023. 

Meanwhile, investors continued to yank cash from equity funds, which recorded their biggest outflows in nine weeks amid rising recession risk. About $16.8 billion exited global stock funds in the week through June 22, with US equities seeing their first outflow in seven weeks at $17.4 billion, Bank of America Corp. said, citing EPFR Global data. 

West Texas Intermediate crude traded near $105 a barrel after retreating over the previous two sessions. The US benchmark has lost almost 4% this week, putting prices on course for their first monthly drop since November.

Sliding raw materials prices have contributed to a moderation in market-based measures of inflation expectations. Oil headed for its first back-to-back weekly loss since early April amid a broader selloff in commodities markets.

Elsewhere, Bitcoin hovered near $21,000, extending a bout of relative stability. The dollar slipped and the yen was flat.

In US premarket trading, software maker Zendesk Inc. soared over 50% on reports it’s close to reaching a deal to be acquired by a group of buyout firms led by Hellman & Friedman and Permira.

How will the second half of this year play out for major asset classes? We are re-running MLIV’s 2022 asset survey from December to see how street views have evolved amid the turmoil and volatility in the past few months. Click here to participate anonymously.

What to watch this week:

• US University of Michigan consumer sentiment, Frida

Some of the main moves in markets:

Stocks

• Futures on the S&P 500 rose 0.9% as of 6:18 a.m. New York time
• Futures on the Nasdaq 100 rose 1%
• Futures on the Dow Jones Industrial Average rose 0.8%
• The Stoxx Europe 600 rose 1.5%
• The MSCI World index rose 0.5%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro rose 0.2% to $1.0548
• The British pound rose 0.3% to $1.2294
• The Japanese yen fell 0.1% to 135.14 per dollar

Bonds

• The yield on 10-year Treasuries advanced two basis points to 3.11%
• Germany’s 10-year yield advanced five basis points to 1.48%
• Britain’s 10-year yield advanced three basis points to 2.34%

Commodities

• West Texas Intermediate crude rose 1.5% to $105.82 a barrel
• Gold futures were little changed

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