Treasuries Rise, Stocks Drift on Recession Worries: Markets Wrap

(Bloomberg) — Treasuries rallied and equities were muted as growing signs of a global economic slowdown raised investor concern that the start-of-the-year rally in risk assets may have gone too far.

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Contracts on the S&P 500 Index were little changed after the benchmark slumped the most in a month Wednesday amid weaker-than-expected economic data. Nasdaq 100 futures were also little changed. Europe’s Stoxx 600 gauge halted a six-day rally. The 10-year Treasury yield declined to the lowest level since September. A selloff spread across global markets, from Japanese shares to oil contracts.

A rally driven by optimism over China’s economic reopening is beginning to fizzle as data releases signal a decisive slowdown in the rest of the world. Reports from the US showed declines in consumer demand and business investment, boosting the probability of a recession in the world’s largest economy. That, however, didn’t deter Federal Reserve officials from reaffirming the need for tighter monetary policy.

“This weakness in equity markets will continue a bit longer in this first quarter of the year as the market reprices what the Fed will do,” Sailesh Jha, the chief economist and head of market research for RHB Banking Group, said in an interview with Bloomberg Television.

Europe’s equity benchmark snapped the longest streak of gains since November 2021, dragged by energy and mining stocks. Australian bonds rose after the nation’s employment levels unexpectedly fell in December. New Zealand’s dollar fell 0.7% amid news Prime Minister Jacinda Ardern will step down next month.

Treasuries advanced across the curve, with the two-year yield shedding 4 basis points, while the 10-year rate fell 3 basis points. The dollar traded lower, with the Japanese yen contributing most to its losses.

In the US, Wednesday’s releases showed producer prices and retail sales fell, while business equipment production slumped. A decline in factory output wrapped up the weakest quarter for manufacturing since the onset of the pandemic. Even after such a string of poor data, Fed officials repeated calls for more interest-rate hikes.

St. Louis Fed President James Bullard said policy was not yet in restrictive territory and projected a forecast rate of up to 5.5% by the end of the year in the Fed’s dot plot projections. is “almost” in restrictive territory but not quite. Cleveland Fed President Loretta Mester said the Fed needs “keep going” and Philadelphia Fed chief Patrick Harker repeated his view of lifting interest rates in quarter-point increments “going forward.”

Oil fell for a second day as traders had to contend with US recession worries as well as another build in inventories. West Texas Intermediate dropped below $79 a barrel after declining almost 1% on Wednesday.

Key events this week:

US housing starts, initial jobless claims, Philadelphia Fed index, Thursday
ECB account of its December policy meeting and President Christine Lagarde on a panel in Davos, Thursday
Fed speakers include Susan Collins and John Williams, Thursday
Japan CPI, Friday
China loan prime rates, 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 fell 0.6% as of 8:27 a.m. London time
S&P 500 futures were little changed
Nasdaq 100 futures were little changed
Futures on the Dow Jones Industrial Average fell 0.1%
The MSCI Asia Pacific Index fell 0.4%
The MSCI Emerging Markets Index fell 0.2%

Currencies

The Bloomberg Dollar Spot Index fell 0.1%
The euro rose 0.3% to $1.0821
The Japanese yen rose 0.6% to 128.17 per dollar
The offshore yuan fell 0.1% to 6.7765 per dollar
The British pound was little changed at $1.2339

Cryptocurrencies

Bitcoin rose 0.1% to $20,809.53
Ether was little changed at $1,528.67

Bonds

The yield on 10-year Treasuries declined three basis points to 3.34%
Germany’s 10-year yield declined three basis points to 1.99%
Britain’s 10-year yield declined eight basis points to 3.24%

Commodities

Brent crude fell 1% to $84.13 a barrel
Spot gold rose 0.6% to $1,916.06 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson.