Stocks Steady From Losses Driven by Recession Bets: Markets Wrap

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European stocks and US equity-index futures were steady as traders took a pause from a weekly selloff driven by hawkish central banks, mixed economic data and worsening earnings in the world’s largest economy.

Bloomberg News

Srinivasan Sivabalan

Published Jan 20, 2023  •  3 minute read

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An electronic stock board outside a securities firm in Tokyo, Japan, on Monday, Nov. 21, 2022. The world's central banks must keep raising interest rates to fight soaring and pervasive inflation, even as the global economy sinks into a significant slowdown, the OECD said. Photographer: SeongJoon Cho/Bloomberg
An electronic stock board outside a securities firm in Tokyo, Japan, on Monday, Nov. 21, 2022. The world’s central banks must keep raising interest rates to fight soaring and pervasive inflation, even as the global economy sinks into a significant slowdown, the OECD said. Photographer: SeongJoon Cho/Bloomberg Photo by SeongJoon Cho /Bloomberg

(Bloomberg) — European stocks and US equity-index futures were steady as traders took a pause from a weekly selloff driven by hawkish central banks, mixed economic data and worsening earnings in the world’s largest economy.

Contracts on the S&P 500 and Nasdaq 100 rose at least 0.3% each even as the underlying gauges were poised for the biggest weekly losses since before Christmas. The Stoxx Europe 600 Index rebounded from the biggest loss in a month. Treasuries fell as investors weighed comments by US and European central bankers favoring higher interest rates. The dollar fluctuated in a tight range. Oil climbed on hopes for Chinese demand.

This week’s economic data pointed to an increased possibility of a US recession and global slowdown, but that didn’t deter Federal Reserve or European Central Bank officials from reiterating their hawkish stance. With 10% of S&P 500 companies having reported the latest quarterly earnings, initial trends suggest a rapid deterioration in profitability, helping to erase about $700 billion of equity value in the past two days alone.

“The Fed is not stepping back from its rate hike talk despite easing inflation and easing activity,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, wrote in a note. “Major banks and institutions agree that the US is faced with a mild recession.” 

On Thursday, Fed Vice Chair Lael Brainard, considered a dove, said rates would need to stay elevated for a period to further cool inflation. Her comments came a day after St. Louis Fed President James Bullard penciled in a forecast for a target-rates range of 5.25% to 5.5% by the end of this year. The current range is 4.25% to 4.5%. 

Adding to the somber mood in the US, the federal debt limit was hit and the Treasury Department began the use of special measures to avoid defaulting on any payments.

The nascent earnings-reporting season has brought concern that higher interest rates are already impacting the economy and corporate performance. Of the 51 S&P 500 companies that have reported results so far, only two-thirds have beaten analysts’ estimates, compared with the 80% positive surprise seen over the past several quarters.

Europe’s benchmark Stoxx 600 index steadied from Thursday’s biggest slump in a month, as energy and mining stocks rose. A measure of global stocks rose for the first time in four days, but remained on course for a weekly decline.

The dollar was little changed, holding on to its first weekly gain in more than a month. 

Oil contracts rose for a second day, with West Texas Intermediate crude heading for a weekly advance. Traders were emboldened by Chinese demand that’s been picking up after the nation abandoned harsh virus restrictions.

Copper was poised for a fifth weekly increase, its best run since May 2021, with global supply risks persisting and inventories near historic lows. Stocks including Freeport McMoRan Inc. may be in focus when premarket trading opens in New York.

Key events on Friday:

  • US existing home sales, Friday
  • IMF’s Kristalina Georgieva and ECB’s Lagarde speak in Davos, Friday

Here are some of the main market moves:

Stocks

  • The Stoxx Europe 600 rose 0.3% as of 8:45 a.m. London time
  • S&P 500 futures rose 0.3%
  • Nasdaq 100 futures rose 0.4%
  • Futures on the Dow Jones Industrial Average rose 0.2%
  • The MSCI Asia Pacific Index rose 0.7%
  • The MSCI Emerging Markets Index rose 0.8%

Currencies

  • The Bloomberg Dollar Spot Index was little changed
  • The euro rose 0.1% to $1.0849
  • The Japanese yen fell 0.4% to 128.99 per dollar
  • The offshore yuan fell 0.1% to 6.7777 per dollar
  • The British pound fell 0.3% to $1.2360

Cryptocurrencies

  • Bitcoin was little changed at $20,949.88
  • Ether rose 0.4% to $1,551.92

Bonds

  • The yield on 10-year Treasuries advanced two basis points to 3.41%
  • Germany’s 10-year yield advanced four basis points to 2.10%
  • Britain’s 10-year yield advanced three basis points to 3.30%

Commodities

  • Brent crude rose 0.8% to $86.83 a barrel
  • Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

—With assistance from Richard Henderson, Brett Miller and Rob Verdonck.

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