Equity markets gained Wednesday, with investors expanding their search for hedges after the Federal Reserve’s strengthened resolve to clamp down on inflation drove bonds toward record losses.
An MSCI Inc. gauge of Asia Pacific shares rose for a second day, led by Japan and Hong Kong. US futures fluctuated after the S&P 500 advanced for the fifth session in six. The index has now recovered halfway from the rout that started in January. European contracts advanced.
Treasuries extended a slide triggered Monday by signals from Fed Chair Jerome Powell that a half-point interest-rate hike is possible at the central bank’s next meeting. Short-term US government bonds sank towards their worst quarterly performance in almost four decades, and yields rose to highs unseen since mid-2019.
Oil advanced on the prospect of new sanctions on Russia over its invasion of Ukraine and as US crude inventories declined. The yen sank to a six-year low, while a gauge of the dollar was steady.
Chinese equities wavered on more lockdowns to curb rising Covid-19 cases, but tech stocks extended a rally into a second day, as share buybacks by Xiaomi Corp. and Alibaba Group Holding Ltd. spurred hopes that other tech firms may follow suit.
Equity markets appear to be keeping faith in the resilient, and some investors are leaning into stocks as an inflation hedge. Bonds are taking the brunt of central-bank calls for tougher action to curb inflation, which has risen to 40-year highs as the war on Ukraine spurs commodity prices. Even the Fed’s more-dovish policy makers are echoing Powell’s statement that rates may have to rise faster, insisting that the economy is strong enough to weather higher borrowing costs.
“We are positive for equities for this year,” Seema Shah, Principal Global Investors chief strategist, said on Bloomberg Television. While the market may be more challenged in 2023 and recession risks are rising, “we still think the US economy is pretty good fundamentally,” she said.
“Faster hikes are clearly going to help inflation come down,” which may reduce the need for a longer tightening campaign, she added.
The Fed raised rates by a quarter-point last week and projected six more such moves by year-end. Derivatives traders are braced for a slightly steeper path this year, including at least one half-point rise. San Francisco Fed President Mary Daly said Tuesday that it was time to remove policy accommodation, while St. Louis Fed President James Bullard and Cleveland’s Loretta Mester favored a speedier pace in increases.
Nevertheless, growth concerns are mounting with little sign of a resolution to Russia’s war in Ukraine. President Joe Biden and allies meeting Thursday in Brussels are expected to announce new sanctions against Russia designed to keep the Kremlin from sidestepping existing economic penalties. The US and UK have reached a deal to ease tariffs on British steel and aluminum that may ease some inflationary pressures.
Meanwhile, embattled developer China Evergrande Group assured investors it was on track to provide creditors with a preliminary restructuring proposal by the end of July.
Here are some key events this week:
- European Central Bank President Christine Lagarde, Bank of England Governor Andrew Bailey, Fed Chair Powell among speaker at BIS innovation summit, Wednesday
- EIA crude oil inventory report, Wednesday
- UK Chancellor Rishi Sunak’s “Spring Statement” on the budget, Wednesday
- US President Joe Biden attends NATO emergency summit in Brussels, Thursday
- Eurozone Markit PMIs, Thursday
- US initial jobless claims, US durable goods, Thursday
Some of the main moves in markets:
- S&P 500 futures were steady as of 1:55 pm in Tokyo. The S&P 500 rose 1.1%
- Nasdaq 100 futures were little changed. The Nasdaq 100 rose 1.9%
- Topix index added 2.2%
- Australia’s S & P / ASX 200 Index gained 0.6%
- Kospi index added 0.5%
- Hang Seng Rose Index 1.7%
- Shanghai Composite Index fell 0.1%
- Euro Stoxx 50 futures rose 0.8%
- The Japanese yen was at 121.13 per dollar, down 0.3%
- The offshore yuan was at 6.3815 per dollar
- The euro was at $ 1.1027
- The Bloomberg Dollar Spot Index was little changed
- The yield on 10-year Treasuries rose two basis points to 2.40%
- The yield on 10-year Australian bonds rose six basis points to 2.78%
- West Texas Intermediate crude climbed 1.2% to $ 110.65 a barrel
- Gold was at $ 1 922.30 an ounce
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