Stocks Rise, Treasuries Trim Jump; Yen Advances: Markets Wrap

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(Bloomberg) — The technology sector spurred a climb in stocks Friday and bonds held the bulk of a recent rally as investors evaluated economic threats and scaled back expectations for inflation and interest-rate hikes.

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An Asian equity index rose for a second day, aided by Chinese tech shares, S&P 500 futures European contracts pushed higher. US shares closed near session highs Thursday, adding more than 3% in three days.

Australian debt rose while Treasuries trimmed an advance. The policy-sensitive US two-year yield is on course for one of its biggest weekly drops since March 2020. The dollar steadied and the yen strengthened.

Oil held at around $104 a barrel. A gauge of commodities has retreated to its lowest level since February in a sign of economic angst.

US data and Federal Reserve commentary added to those concerns. Jobless claims hovered near a five-week high and manufacturing and services cooled.

Fed Chair Jerome Powell in testimony to lawmakers reiterated that his commitment to bringing down price increases is “unconditional.” Fed Governor Michelle Bowman said she supports raising interest rates by 75 basis points again in July, followed by a few more half-point hikes.

Investors are grappling with the question of what comes next if an economic downturn takes hold. One scenario comprises cooling price pressures and hence scope for central banks to ease up on the pace of interest-rate hikes.

‘Fraught Transition’

Traders are starting to price out any Fed action on rates beyond the December meeting, scaling back the additional tightening they expect and flirting with the possibility of cuts by the end of 2023.

Read more: Traders Hedge Fed Cuts in 2023 as Recession Risk Hits Yields

Markets are negotiating “a fraught transition from ‘front-loaded’ synchronized tightening towards demand destruction and peak ‘price-pressure’,” Citigroup Inc. strategists William O’Donnell and Edward Acton wrote in a note.

One of the keys to that shift is the slide in prices for raw materials, which has contributed to a moderation in market-based measures of inflation expectations. There’s a heated debate on whether the trend will continue.

Geopolitical and supply issues mean that energy could return to an “upward trend for at least a couple of months,” Sylvia Jablonski, chief investment officer at Defiance ETFs LLC, said on Bloomberg Television.

Elsewhere, Bitcoin scaled $21,000, extending a bout of relative stability.

How will the second half of this year play out for major asset classes? We are re-running MLIV’s 2022 asset survey from December to see how street views have evolved amid the turmoil and volatility in the past few months. Click here to participate anonymously.

What to watch this week:

  • US University of Michigan consumer sentiment, Friday

  • RBA’s Lowe speaks on panel, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures rose 0.6% as of 11:52 a.m. in Tokyo. The S&P 500 rose 1%

  • Nasdaq 100 futures rose 0.8%. The Nasdaq 100 rose 1.5%

  • Japan’s Topix index added 0.3%

  • South Korea’s Kospi index increased 2.3%

  • Australia’s S&P/ASX 200 index climbed 0.5%

  • China’s Shanghai Composite index was up 0.8%

  • Hong Kong’s Hang Seng index rose 1.6%

  • Euro Stoxx 50 futures increased 1.1%

Currencies

  • The Bloomberg Dollar Spot Index dipped 0.1%

  • The euro was at $1.0537, up 0.1%

  • The Japanese yen was at 134.81 per dollar, up 0.1%

  • The offshore yuan was at 6.6873 per dollar, up 0.2%

Bonds

Commodities

  • West Texas Intermediate crude was at $104.16 a barrel, down 0.1%

  • Gold was at $1,825.73 an ounce, up 0.2%

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