(Bloomberg) — US equity futures pointed to a recovery on Wall Street Thursday, with European shares rising in sympathy, as investors weighed mixed economic signals about the health of the American economy and interest rates.
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Contracts on the tech-heavy Nasdaq 100 rose 0.4% after the underlying gauge ended down 1.5% Wednesday. Those on the S&P 500 added 0.3%, with the European stock benchmark also ticking higher.
Treasury 10-year yields edged higher after dropping on Wednesday amid indications from Federal Reserve officials that policy would tighten policy further. A closely watched section of the US yield curve remained near levels not seen in four decades — a sign of investor concern about the world’s biggest economy.
In a scenario that has played out repeatedly across world markets in recent weeks, equities were forced to hit pause on their multi-day rally on Wednesday, as stronger-than-expected US economic data and a raft of Fed speakers dampened hopes the US central bank could end its rate-hiking cycle earlier than expected.
“We are cognizant that each time global markets attempt to rally on the back of speculation that the end of the Fed’s tightening intentions may be in sight, FOMC officials come out with a new paragraph of hawkish narrative, to tamp down any prospect of irrational exuberance,” Simon Ballard, chief economist at First Abu Dhabi Bank, wrote in a note to investors.
With inflation only starting to ease after hitting decades-high level, and a gauge of US retail sales increasing at the fastest pace in eight months, the message from Fed speakers is that they have further to go to extinguish prices pressures.
Other San Francisco Fed President Mary Daly said a pause in rate hikes was “off the table,” and New York Fed President John Williams said the central bank should avoid incorporating financial stability risks into its considerations.
Goldman Sachs Group Inc. increased its forecast for peak US interest rates to 5.25% at the top of the range, up from the previous call 5%.
Yet other signs suggest the world’s biggest economy is losing steam as American consumers get squeezed by the highest inflation in four decades. Retailer Target Corp. undershot forecasts Wednesday, saying a pullback from US shoppers had hit earnings.
“The overall macro outlook for the U.S. economy is one of fragile strength and this scenario continues to favor a modest easing – and then plateauing – of the pace of incremental tightening,” Ballard wrote.
Oil extended losses as investors shifted their focus back to concerns over the demand outlook after geopolitical tensions eased.
Gold declined in Asia as expectations of a hawkish Fed outweighed hopes of an imminent moderation in rate hikes.
In Britain, Chancellor Jeremy Hunt is expected to detail spending cuts as well as tax hikes to repair the hole in government finances but he will have to tread carefully as a fresh round of austerity could further dent the economy which is facing the worst cost-of living squeeze in four decades.
Read more: Watch UK Domestic Stocks as Chancellor Hunt Delivers Budget
The pound rose, putting it on the verge of breaking above $1.20, having fallen towards parity in September. While the consensus is for Hunt to stick to fiscal orthodoxy, traders are wary about being caught off guard again.
Key events this week:
Eurozone CPI, Thursday
US housing starts, initial jobless claims, Thursday
Fed’s Neel Kashkari, Loretta Mester speak, Thursday
US Conference Board leading index, existing home sales, Friday
Some of the main moves in markets:
The Stoxx Europe 600 rose 0.2% as of 8:41 a.m. London time
Futures on the S&P 500 rose 0.3%
Futures on the Nasdaq 100 rose 0.4%
Futures on the Dow Jones Industrial Average rose 0.3%
The MSCI Asia Pacific Index fell 0.5%
The MSCI Emerging Markets Index fell 0.9%
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0398
The Japanese yen rose 0.2% to 139.24 per dollar
The offshore yuan fell 0.3% to 7.1296 per dollar
The British pound rose 0.2% to $1.1937
Bitcoin rose 0.3% to $16,578.2
Ether fell 0.3% to $1,202.25
The yield on 10-year Treasuries advanced two basis points to 3.71%
Germany’s 10-year yield declined two basis points to 1.98%
Britain’s 10-year yield declined two basis points to 3.12%
Brent crude was little changed
Spot gold fell 0.3% to $1,769.34 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson.
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