Stocks and bonds rise as Fed tightening bets are cut: Markets pull back

0

(Bloomberg) – Stocks soared in Asia, bonds surged and the dollar tumbled amid investor relief after the Federal Reserve raised interest rates as expected to fight inflation while countering fears of massive increases.

Bloomberg’s Most Read

An Asian stock gauge rose about 1%, supported by Hong Kong. Chinese stocks were mixed after reopening after a public holiday. U.S. futures traded after the S&P 500 index rose 3%, the biggest since 2020.

Australian debt surged on the back of a sharp fall in shorter-dated US Treasury yields as traders reduced their bets on aggressive monetary tightening. There is no cash treasury bond exchange in Asia due to a public holiday in Japan.

Fed Chairman Jerome Powell said a 75 basis point hike is “not something the committee is actively considering,” spurring the market rally. The Fed raised rates by half a point and signaled similar moves for the next two meetings.

“Removing some of the uncertainty is helpful in pumping some of the cash that was on the margins back into the markets, whether it’s bonds or equities,” said Erin Gibbs, chief investment officer. at Main Street Asset Management LLC, on Bloomberg Television.

The U.S. central bank will also allow its holdings of Treasuries and mortgage-backed securities to decline in June at an initial combined monthly pace of $47.5 billion, rising three months to $95 billion.

Market reaction is likely to evolve as investors digest Powell’s comment. A global wave of monetary tightening accompanied by commodity-fueled price pressures could further hurt economic growth. Russia is also continuing its war in Ukraine and Covid lockdowns in China are rumbling global supply chains.

The rises in oil and wheat underscored the risks. Crude hit $108 a barrel under a European Union plan to ban Russian barrels over the next six months. Wheat rose on the possibility of curbing exports by the major Indian producer.

‘Too optimistic’

“The market is far too optimistic about the Fed’s ability to control inflation,” wrote Nancy Davis, chief investment officer at Quadratic Capital Management LLC, in a note. “We may be facing an environment of stagflation.”

Swaps linked to Fed meetings now forecast less than 150 basis points of further rate hikes from decisions in June, July and September. This raises doubts about the scope of three more hikes of 50 basis points each.

Gold extended its gains amid falling bond yields and cooling expectations for policy tightening.

Later in Europe, the Bank of England is expected to hike rates to their highest level in 13 years and clarify how it plans to sell some of its 847 billion pounds ($1.1 trillion) of government bonds. State.

Europe and the conflict in Ukraine is the topic of this week’s MLIV Pulse survey. Given that the ECB is nearing the end of quantitative easing, is it inevitable that Europe will experience a hard landing and how would that affect assets? It only takes a minute and is anonymous, so share your thoughts in the survey by clicking here.

Key events this week:

  • Bank of England rate decision and briefing Thursday

  • OPEC+ meets virtually for regular meeting on Thursday

  • U.S. April Jobs Report, Friday

Some of the major movements in the markets:

Shares

  • S&P 500 futures lost 0.1% at 10:47 a.m. in Tokyo. The S&P 500 rose 3%

  • Nasdaq 100 futures fell 0.1%. The Nasdaq 100 added 3.4%

  • Australia’s S&P/ASX 200 index rose 0.6%

  • Hong Kong’s Hang Seng Index rose 1.5%

  • China’s Shanghai Composite Index rose 0.4%

  • Euro Stoxx 50 futures climbed 2.2%

Currencies

  • The Japanese yen was at 129.18 to the dollar, down 0.1%

  • The offshore yuan was at 6.6281 to the dollar, down 0.1%

  • The Bloomberg Dollar Spot Index remained stable

  • The euro was at $1.0610, down 0.1%

Obligations

Merchandise

  • West Texas Intermediate crude rose 0.4% to $108.24 a barrel

  • Gold was at $1,901.12 an ounce, up 1.1%

Bloomberg Businessweek’s Most Read

©2022 Bloomberg LP

Share.

About Author

Comments are closed.