European stocks bounce back; dollar extends rally: markets wrap

Stocks are ending the week on a positive note, with European equities snapping two days of declines sparked by the Federal Reserve’s plan for aggressive monetary-policy tightening.

The Stoxx Europe 600 index climbed more than 1%, with all industry sectors in the green and energy and basic resources leading the advance. Swedish truck maker Volvo AB declined after saying it will take a $423 million hit from Russia’s war in Ukraine, the latest indication of how the conflict may affect corporate profits. US equity futures gained and an Asia-Pacific share index eked out a small climb.

Treasuries were mixed and a key portion of the bond curve remained steeper in the wake of the Fed minutes Wednesday, which outlined plans to pare the central bank’s balance sheet by more than $1 trillion a year alongside interest-rate hikes.

A dollar gauge extended its rally to a seventh day, hitting the highest level since July 2020. Oil was steady after three days of losses stoked by plans to release millions of barrels of crude from strategic reserves and China’s demand-sapping virus outbreak.

Global equities are nursing losses for the week as markets grapple with the Fed’s campaign against elevated price pressures, Russia’s grinding war in Ukraine and China’s Covid travails. The lockdown in Shanghai — which recorded more than 21,000 new daily virus cases — has become one of President Xi Jinping’s biggest challenges. Expectations are growing that China will take steps to support its economy.

“Stocks have had a little bit of a harder time this week digesting the fact that interest rates are going to be higher” amid a major shift in expectations around monetary policy, Anthony Saglimbene, global market strategist at Ameriprise Financial Inc., said on Bloomberg Television.

Federal Reserve Bank of St. Louis President James Bullard said he prefers boosting the policy rate to 3%-3.25% in the second half of 2022. Chicago Fed President Charles Evans and his Atlanta counterpart Raphael Bostic said they favor raising rates to neutral while monitoring the economy’s performance.

Yield curve

The steepening in the Treasury yield curve contrasts with the flattening and inversions that have vexed markets this year. The two-year rate topped the 10-year last week for the first time since 2019, a possible warning of recession.

“We’re seeing a tactical re-steepening right now but the curve is going to continue to flatten,” Kelsey Berro, fixed income portfolio manager at JPMorgan Asset Management, said on Bloomberg Television. “That’s because the Fed has told us, we’d like to get to neutral expeditiously. On top of that, they may need to tighten beyond neutral. Front-end yields can still go higher.”

In China, technology stocks slid for a third day on Tencent Holdings Ltd.’s move to shut a game streaming service. India’s the 10-year bond yield hit 7% — the highest since 2019 — as the nation’s central bank boosted an inflation forecast.

Meanwhile, US officials warned the war in Ukraine may last for weeks or even years. European Union countries agreed to ban coal imports from Russia, the first time the bloc’s sanctions have targeted Moscow’s crucial energy revenues.

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 1.1% as of 8:30 a.m. London time
• Futures on the S&P 500 rose 0.2%
• Futures on the Nasdaq 100 rose 0.4%
• Futures on the Dow Jones Industrial Average rose 0.2%
• The MSCI Asia Pacific Index was little changed
• The MSCI Emerging Markets Index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%
• The euro fell 0.3% to $1.0851
• The Japanese yen fell 0.1% to 124.08 per dollar
• The offshore yuan was little changed at 6.3677 per dollar
• The British pound fell 0.3% to $1.3031

Bonds

• The yield on 10-year Treasuries was little changed at 2.65%
• Germany’s 10-year yield declined two basis points to 0.66%
• Britain’s 10-year yield declined two basis points to 1.71%

Commodities

• Brent crude rose 0.4% to $100.97 a barrel
• Spot gold was little changed