Equities are struggling to shake off growth, fears of interest rates: markets are collapsing

(Bloomberg) – Stock markets tried to shake off recent weakness on Tuesday, amid renewed expectations of more stimulus measures in China and optimism that a looming economic slowdown may prove less severe than fears.

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The Stoxx Europe 600 index gave up opening gains after European Central Bank President Christine Lagarde dashed hopes that the cycle of interest rate hikes would end soon. Among individual investors, Prosus NV rose almost 10% after receiving regulatory approval to end its cross-holding structure with Naspers Ltd. was granted. Volkswagen AG pushed auto stocks lower after it was revealed the company plans to cut production of one of its electric SUV models amid weak sales.

S&P 500 and Nasdaq 100 futures rose about 0.3%, trying to claw back from last week's losses, the worst since March, amid concerns the Federal Reserve could push the US economy into recession. While markets are comfortable with the view that the Fed will not cut interest rates this year, many believe the recession could be relatively shallow and hurt corporate earnings less than expected.

“Growth has held up well so far,” said Mark Dowding, chief investment office at BlueBay Asset Management. “As central banks near the end of their rate-hiking cycles, this has raised hopes of a relatively soft landing in economic terms, without a deeper recession.”

Relatively upbeat market sentiment weighed on bond prices as the dollar depreciated against its peers in the Group of Seven. Iron ore and copper rose on expectations that China could announce further support for its struggling economy.

Lagarde's comments in Sintra, Portugal will fuel fears that central banks will continue to hike interest rates and send fragile economies into reverse gear. Their counterparts from the US, Japan and the UK will be speaking at the same forum later this week.

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Some of the fears for the global economy were eased by signs that China is countering investor pessimism and strengthening support for its currency on Tuesday. State-run China Securities Journal said on Tuesday that pro-growth measures would improve the yuan's prospects, although Beijing is likely to remain cautious about over-stimulating.

There are also positive signs for US-China relations from a report that US Treasury Secretary Janet Yellen plans to visit Beijing next month for talks with her new Chinese counterpart, He Lifeng.

China optimism pushed a benchmark for Asian stocks on course for the first rise in seven days, buoyed by a rally in Hong Kong-listed tech stocks.

The yen, meanwhile, has been hovering around 143.50 against the dollar after falling almost 10% against the dollar so far this year. The weakness sparked concern in Tokyo, and the country extended the tenure of its top currency official, Masato Kanda, for another year. This underscores the determination to contain the weakness of the currency.

Oil prices extended gains on optimism over China's stimulus measures and uncertainty over Russian crude production following a weekend mutiny by Yevgeny Prigozhin, leader of the Wagner mercenary group.

Investors will focus on US data on office equipment orders, home sales and consumer confidence later in the day for a picture of the economy.

Important events this week:

• US New Home Sales, Durables, Conference Board Consumer Confidence, Tuesday

• US Wholesale Inventories, Goods Trade Balance, Wednesday

• The Fed will present the results of its annual stress test for the banking industry on Wednesday

• Policy panel with ECB Chair Christine Lagarde, Fed Chair Jerome Powell, BOJ Chair Kazuo Ueda and BOE Chair Andrew Bailey speak Wednesday

• Eurozone Economic Confidence, Consumer Confidence, Thursday

• US GDP, Initial Jobless Claims, Thursday

• Atlanta Fed President Rafael Bostic speaks Thursday

• China Manufacturing PMI, Non-manufacturing PMI, Balance of Payments, Friday

• US Personal Income and Expenditure, Consumer Sentiment at University of Michigan, Friday

Some of the key movements in the markets:

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• The Stoxx Europe 600 was little changed at 9:40 am London time

• S&P 500 futures up 0.2%

• Nasdaq 100 futures up 0.3%

• Futures on the Dow Jones Industrial Average hardly changed

• MSCI Asia Pacific Index up 0.3%

• MSCI Emerging Markets Index up 0.5%

currencies

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro rose 0.3% to $1.0937

• The Japanese yen fell 0.2% to 143.76 per dollar

• The offshore yuan rose 0.3% to 7.2186 per dollar

• The British pound rose 0.1% to $1.2731

cryptocurrencies

• Bitcoin rose 0.7% to $30,379.86

• Ether was up 1.4% to $1,876.7

Bind

• The 10-year government bond yield rose two basis points to 3.74%

• The 10-year German government bond yield rose one basis point to 2.32%

• The 10-year UK government bond yield rose three basis points to 4.33%

raw materials

This story was created with the support of Bloomberg Automation.

– With support from Tassia Sipahutar and Anchalee Worrachate.

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