(Bloomberg) — A selloff in U.S. equity-index futures subsided and European stocks pared a decline as investors bet the Federal Reserve’s faster-than-expected policy tightening will still leave opportunities for equity gains. Treasury yields extended a spike.
Contracts on the Nasdaq 100 Index were littel changed after falling as much as 0.9%, while S&P 500 futures traded marginally higher. Gains for banks and automakers limited losses in Europe’s Stoxx 600 gauge. Yields on government bonds jumped from Japan to Germany and the U.K. The 10-year U.S. rate added three basis points. The dollar gave up earlier gains, while the yen caught a haven bid.
Minutes from the Fed’s December meeting showed officials’ increasing preference for a faster path of rate hikes and a shrinking of the bank’s $8.8 trillion balance sheet. That could bring curtains down on unprecedented policy accommodation which underwrote asset prices through the worst of the pandemic. The Fed is now at the core of the investment outlook for 2022, overriding continuing concerns such as slowing global growth, China’s regulatory crackdown and supply bottlenecks.
“There will undoubtedly be pockets of volatility surrounding Fed meetings throughout the year, but investors shouldn’t excessively fear the Fed, especially when there continue to be exciting alpha opportunities in markets,” Madison Faller, a global strategist at JPMorgan Private Bank, wrote in an email. “Growth and inflation will be decelerating throughout 2022, but nonetheless remain above historic trend levels. We think this will call for a much lower risk of a Fed-induced material market correction.”
The minutes, released Wednesday after the close of European markets, sparked a rout in U.S. stocks concentrated in expensive technology names. The Nasdaq 100 tumbled the most since March, while the 10-year Treasury rate crossed the 1.70% mark.
But equities showed relative calm on Thursday, while bonds extended their selloff. German 10-year borrowing costs jumped to the highest since May 2019, while their Italian counterparts surged to a June 2020 high. Japan’s benchmark yield climbed to the highest since April 2021, while similar rates in Australia and New Zealand rose to the most since November and the U.K.’s 10-year yield jumped to an October high.
Treasuries extended their losses Thursday, with the rates between the two-year and 30-year tenors adding about three basis points each.
The Hang Seng Tech Index in Hong Kong, which had echoed the Nasdaq selloff by falling to the lowest level since May 2020, rebounded late in the session. Alibaba closed 5.7% higher.
Europe’s Stoxx 600 gauge traded 1% down, after a loss of as much as 1.6%. Carrefour SA advanced as much as 5.6% amid reports Auchan Holding SA was considering an all-cash offer for the French grocer.
“At current levels, we do not believe that higher (real) yields are a game-changer for global equity markets,” Mathieu Racheter, the head of equity strategy at Julius Baer said in an email. “In terms of market dynamics, the rotation from long-duration stocks, which have been among the big winners in 2021, toward more economically-sensitive sectors could continue in the short-term.”
Elsewhere, Bitcoin tumbled to around $42,600, heading for its lowest level since September. Crude-oil futures rebounded.
What to watch this week:
- Fed’s Bullard discusses the U.S. economy and monetary policy in an event on Thursday
- Fed’s Daly discusses monetary policy on a panel Friday
- ECB’s Schnabel speaks on a panel Saturday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 1% as of 10:23 a.m. London time
- Futures on the S&P 500 rose 0.1%
- Futures on the Nasdaq 100 were little changed
- Futures on the Dow Jones Industrial Average rose 0.2%
- The MSCI Asia Pacific Index fell 1.4%
- The MSCI Emerging Markets Index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.1325
- The Japanese yen rose 0.2% to 115.86 per dollar
- The offshore yuan fell 0.2% to 6.3853 per dollar
- The British pound fell 0.2% to $1.3531
Bonds
- The yield on 10-year Treasuries advanced three basis points to 1.74%
- Germany’s 10-year yield advanced four basis points to -0.04%
- Britain’s 10-year yield advanced six basis points to 1.14%
Commodities
- Brent crude rose 0.5% to $81.22 a barrel
- Spot gold fell 0.8% to $1,795.58 an ounce
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