Stocks Set for Steady Asia Open Amid Bond Rally: Markets Wrap

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(Bloomberg) — Stocks are set for a steady open in Asia on Friday amid a global bond rally as escalating fears of an economic downturn lead investors to reassess expectations for inflation and attendant interest-rate hikes.

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Equity futures signal cautious starts in Japan, Australia and Hong Kong after US shares closed near session highs, up more than 3% over three days. Contracts for the S&P 500 and Nasdaq 100 dipped in early Asian trading.

Treasuries extended a rally that’s put policy-sensitive two-year yields on course for the biggest weekly drop since March 2020. A dollar gauge was little changed, while the yen held a 1% jump against the greenback.

Oil held a drop to about $104 a barrel and a gauge of commodities has retreated to its lowest level since February in further signs of economic angst.

US data and the latest comments from Federal Reserve officials added to those concerns. Jobless claims hovered near a five-week high and manufacturing and services activity 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. Traders are starting to price out any Fed action on rates beyond the December meeting and scaling back the additional tightening they expect.

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.

Elsewhere, Bitcoin continued to hover just above the $20,000 level.

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 fell 0.4% as of 7:13 a.m. in Tokyo. The S&P 500 rose 1%

  • Nasdaq 100 futures fell 0.4%. The Nasdaq 100 rose 1.5%

  • Nikkei 225 futures were little changed

  • Australia’s S&P/ASX 200 futures fell 0.1%

  • Hang Seng Index futures fell 0.2%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro was at $1.0527

  • The Japanese yen was at 134.97 per dollar

  • The offshore yuan was at 6.6995 per dollar

Bonds

Commodities

  • West Texas Intermediate crude fell 0.2% to $104.06 a barrel

  • Gold was at $1,822.79 an ounce

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