US equities supported by the ECB’s bond support plan: market recap

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(Bloomberg) – Markets end the week on a positive note as U.S. stocks gained and the Treasury curve continued to steepen after declines prompted by the Federal Reserve’s plan for aggressive monetary policy tightening .

The S&P 500 rose mid-morning, taking its losses for the week to 0.8%, as the European Central Bank said it was manufacturing a crisis tool to deploy during a jump in bond yields. Meanwhile, Treasuries fell as investors closely watched a possible reversal in the curve steepening seen following Wednesday’s Fed minutes, which outlined plans to shrink its balance sheet alongside hikes in interest rate.

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“The Fed aims to control inflation without triggering a recession; investors are skeptical, but we expect inflation to moderate later this year, bringing the doves back,” Ed Yardeni, president of Yardeni Research, said in a note.

A dollar gauge extended its rally to a seventh day, hovering near its highest level since July 2020. Oil was higher after three days of losses fueled by plans to release millions of barrels of crude strategic reserves and the virus outbreak that is undermining demand in China.

Meanwhile, the Stoxx Europe 600 index climbed 1.3% as investors took advantage of depressed stock valuations. Banks outperformed, with Banco BPM SpA surging after Crédit Agricole SA bought a 9.2% stake in the Italian lender.

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Global stocks suffer losses for the week as markets grapple with the Fed’s campaign against high price pressures, Russia’s bitter war in Ukraine and China’s difficulties with Covid. The lockdown in Shanghai – which has recorded more than 21,000 daily new virus cases – has become one of President Xi Jinping’s biggest challenges. China is increasingly expected to take action to support its economy.

“The outlook is increasingly bleak as investors and economists continue to lower their growth expectations,” Bryce Doty, senior portfolio manager at Sit Investment Associates, said over the phone. “The headwinds continued to mount. So there is this nervousness that also builds. It’s like reading the weather report – reading that there’s an impending storm even though it’s sunny and sunny today.

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Yield curve

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

“We are currently seeing a tactical upsurge, but the curve will continue to flatten,” Kelsey Berro, bond portfolio manager at JPMorgan Asset Management, told Bloomberg Television. “That’s because the Fed has told us that we would like to move into neutral soon. On top of that, they may need to tighten beyond neutral. Initial yields may rise further.

Meanwhile, US officials have warned that the war in Ukraine could last for weeks or even years. European Union countries have agreed to ban coal imports from Russia, the first time the bloc’s sanctions have targeted Moscow’s crucial energy revenue. Global food prices are rising at the fastest rate ever, as war in Ukraine chokes off agricultural supplies, piling more inflationary pain on consumers and deepening a global hunger crisis.

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Where does the dollar go next? How will the composition of foreign exchange reserves change? These are the themes of this week’s MLIV survey. Please click here to participate.

Some of the major movements in the markets:

Shares

The S&P 500 rose 0.2% at 11:50 a.m. PT The Nasdaq 100 fell 0.7% The Dow Jones Industrial Average rose 0.7% The Stoxx Europe 600 rose 1.3 % The MSCI World Index rose 0.3%

Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.0874 The British pound fell 0.4% to $1.3024 The Japanese yen fell 0.3% to 124.33 for a dollar

Obligations

The yield on 10-year Treasury bills rose four basis points to 2.69%

Merchandise

West Texas Intermediate crude rose 0.9% to $96.92 a barrel Gold futures rose 0.5% to $1,947.20 an ounce

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