Equity Rally Fizzles Amid Worries Over Recession: Markets Wrap

(Bloomberg) — US equity-index futures declined as growing signs of a global economic slowdown raised investor concern that the start-of-the-year rally in risk assets may have gone too far.

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Contracts on the S&P 500 Index dropped 0.7% after the benchmark slumped the most in a month Wednesday amid weaker-than-expected economic data. Nasdaq 100 futures lost 0.8%. Europe’s Stoxx 600 gauge halted a six-day rally. The 10-year Treasury note erased gains. A selloff spread across global markets, from Japanese shares to oil contracts.

In New York premarket trading, Freeport McMoRan Inc. fell as copper resumed its losses. Philip Morris International Inc. rose after Jefferies LLC upgraded its view of the stock.

A rally driven by optimism over China’s economic reopening is beginning to fizzle as data releases signal a decisive slowdown in the rest of the world. Reports from the US showed declines in consumer demand and business investment, boosting the probability of a recession in the world’s largest economy. That, however, didn’t deter Federal Reserve officials from reaffirming the need for tighter monetary policy.

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

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

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The euro traded 0.3% higher against the dollar, as European Central Bank President Christine Lagarde said inflation in the continent remains far too high and policymakers won’t let up in their efforts to return inflation to the target.

Treasuries initially advanced across the curve, but later gave up the gains. The dollar traded lower, with the Japanese yen contributing most to its losses.

In the US, Wednesday’s releases showed producer prices and retail sales fell, while business equipment production slumped. A decline in factory output wrapped up the weakest quarter for manufacturing since the onset of the pandemic. Even after such a string of poor data, Fed officials repeated calls for more interest-rate hikes.

St. Louis Fed President James Bullard said policy was not yet in restrictive territory and projected a forecast rate of up to 5.5% by the end of the year in the Fed’s dot plot projections. is “almost” in restrictive territory but not quite. Cleveland Fed President Loretta Mester said the Fed needs “keep going” and Philadelphia Fed chief Patrick Harker repeated his view of lifting interest rates in quarter-point increments “going forward.”

Copper fell 1.4% in London trading. Freeport McMoRan slid 3.1% in early New York trading. Discover Financial Services tumbled 6.4% as the company reported higher-than-forecast charges for the fourth quarter. Philip Morris rose 1.2% after Jefferies upgraded the stock to buy, citing the outlook for reduced-risk products in the tobacco industry.

Oil fell for a second day as traders had to contend with US recession worries as well as another build in inventories. West Texas Intermediate dropped below $79 a barrel after declining almost 1% on Wednesday.

Key events this week:

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

  • ECB account of its December policy meeting and President Christine Lagarde on a panel in Davos, Thursday

  • Fed speakers include Susan Collins and John Williams, Thursday

  • Japan CPI, Friday

  • China loan prime rates, Friday

  • US existing home sales, Friday

  • IMF’s Kristalina Georgieva and ECB’s Lagarde speak in Davos, Friday

Here are some of the main market moves:

Stocks

  • S&P 500 futures fell 0.7% as of 6:23 a.m. New York time

  • Nasdaq 100 futures fell 0.8%

  • Futures on the Dow Jones Industrial Average fell 0.6%

  • The Stoxx Europe 600 fell 1.2%

  • The MSCI World index fell 0.4%

Currencies

  • The Bloomberg Dollar Spot Index was down 0.1%

  • The euro rose 0.3% to $1.0826

  • The British pound was little changed at $1.2337

  • The Japanese yen rose 0.3% to 128.51 per dollar

Cryptocurrencies

  • Bitcoin fell 0.3% to $20,725.58

  • Ether fell 0.7% to $1,517.33

Bonds

  • The yield on 10-year Treasuries was little changed at 3.37%

  • Germany’s 10-year yield advanced three basis points to 2.05%

  • Britain’s 10-year yield was little changed at 3.31%

Commodities

  • West Texas Intermediate crude fell 1% to $78.66 a barrel

  • Gold futures rose 0.2% to $1,911.40 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson.

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