Treasuries climb, stocks slide on recession worries: Markets close

(Bloomberg) — Treasuries rallied and stocks softened as growing signs of a global economic slowdown raised investor concern that the early-year rally in risky assets may have gone too far.

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Contracts on the S&P 500 index were adjusted slightly after the benchmark plunged the most in a month on Wednesday on weaker-than-expected economic data. Nasdaq 100 futures were also little changed. The European Stoxx 600 has halted a six-day rally. The 10-year Treasury yield fell to its lowest level since September. A widespread sell-off across global markets, from Japanese equities to oil contracts.

An optimistic-led rally on China’s economic reopening is starting to fade as data releases signal a decisive slowdown in the rest of the world. Reports from the US showed a drop in consumer demand and business investment, raising the likelihood of a recession in the world’s largest economy. That, however, hasn’t deterred Federal Reserve officials from reaffirming the need for tighter monetary policy.

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

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

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

In the United States, Wednesday’s releases showed producer prices and retail sales fell, while production of corporate equipment collapsed. A decline in industrial production ended the weakest quarter for manufacturing since the start of the pandemic. Even after such a slew of poor data, Fed officials have repeated calls for more interest rate hikes.

St. Louis Fed Chairman James Bullard said policy was not yet in tight territory and projected an expected rate of up to 5.5% by year’s end in the Fed’s point projections. in restrictive territory but not quite. Cleveland Fed Chair Loretta Mester said the Fed needs to “keep it going,” and Philadelphia Fed Chief Patrick Harker reiterated his view on raising interest rates in quarter-point increments” in the future”.

Oil fell for a second day as traders grappled with fears of a US recession and another build-up in inventories. West Texas Intermediate fell below $79 a barrel after dropping nearly 1% on Wednesday.

Key events this week:

  • US housing starts, initial jobless claims, Philadelphia Fed index, Thursday

  • The ECB’s December policy meeting report and President Christine Lagarde in a panel in Davos on Thursday

  • Fed speakers include Susan Collins and John Williams on Thursday

  • Japan CPI, Friday

  • Prime rates on Chinese loans, Friday

  • US Existing Home Sales, Friday

  • Kristalina Georgieva of the IMF and Lagarde of the ECB speak in Davos on Friday

Here are some of the major market moves:

Actions

  • The Stoxx Europe 600 was down 0.6% as of 8:27am London time

  • S&P 500 futures were little changed

  • The Nasdaq 100 futures were little changed

  • Dow Jones Industrial Average futures fell 0.1%

  • MSCI Asia Pacific Index fell 0.4%

  • MSCI Emerging Markets Index fell 0.2%

Currencies

  • Bloomberg Dollar Spot Index fell 0.1%

  • The euro rose 0.3% to $1.0821

  • The Japanese yen rose 0.6% to 128.17 to the dollar

  • The offshore yuan fell 0.1% to 6.7765 to the dollar

  • The British Pound changed slightly to $1.2339

Cryptocurrencies

  • Bitcoin climbed 0.1% to $20,809.53

  • Ether was little changed at $1,528.67

Bonds

  • The 10-year Treasury yield fell three basis points to 3.34%

  • German 10-year yield fell three basis points to 1.99%

  • UK 10-year yield fell eight basis points to 3.24%

Goods

  • 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 assistance from Bloomberg Automation.

–With assistance from Richard Henderson.

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