Stocks fell and bonds in Europe slid in the wake of a Treasuries selloff as the prospect of higher interest rates continued to mount on the back of the Federal Reserve’s battle against inflation.
(Bloomberg) — Stocks fell and bonds in Europe slid in the wake of a Treasuries selloff as the prospect of higher interest rates continued to mount on the back of the Federal Reserve’s battle against inflation.
The Stoxx Europe 600 index dropped about 0.7% at the open, heading for its first weekly decline in three. Futures on the S&P 500 and Nasdaq 100 fluctuated after Thursday’s retreat on Wall Street.
Treasury yields held gains across the curve after investors pushed yields on the two-year Treasury above the 10-year’s by the most since the early 1980s, a sign of flagging confidence in the economy’s ability to withstand additional Fed hikes. Germany’s 10-year yield rose about five basis points, while gilt yields climbed after data showed the UK narrowly avoided a recession last year.
Next week’s inflation update from the US offers a relevant potential inflection point in the Treasury yield curve, according to Benjamin Jeffery and Ian Lyngen, strategists at BMO Capital Markets Corp. “Our expectations are that the market takes away sufficient angst regarding the prevailing inflation trend to press the inversion trade even further,” they wrote in a note.
Market pricing for US rates to peak in July inched higher as investors digested the fresh data and the drumbeat of central bankers signposting further tightening ahead. Fed Bank of Richmond President Thomas Barkin said it’s important to continue hiking to rein in inflation. His comments echoed sentiment from four Fed officials who spoke Wednesday.
Read: Fed-Funds Call at 8% Keeps One Strategist Ahead of the 6% Pack
An Asia equity benchmark was headed for its second straight weekly fall, with some of the biggest losses posted by Chinese tech shares. Futures on US and Europe equity contracts were also in the red. The picture was different in Japan, with stock gains supported by positive earnings from chipmakers.
A gauge of the dollar declined for a second day, while the offshore yuan was range-bound. Chinese inflation data showed consumer prices rose 2.1% in January from a year earlier, in line with market forecasts.
Meanwhile, Lyft Inc. shares tumbled about 30% in after-hours trading following an earnings outlook that significantly missed analysts’ estimates as it prepares to sacrifice profits in a bid to attract riders with lower prices. In the regular session, Tesla Inc. extended a rally that has pushed the electric-vehicle maker’s stock price up about two-thirds this year. Alphabet Inc. shares fell further on concerns about its artificial intelligence chat bot unveiled earlier this month.
Bitcoin steadied after a Thursday decline that pushed the cryptocurrency down 4.8%, the biggest one-day drop since November, amid speculation about a regulatory crackdown.
Elsewhere, oil trimmed a weekly gain as investors weighed the threat of a global economic slowdown against a bullish outlook for Chinese demand following the end of Covid Zero. Gold held near the lowest close in more than a month.
Key events:
- US University of Michigan consumer sentiment, Friday
- Fed’s Christopher Waller and Patrick Harker speak, Friday
Here are some of the main market moves as of 6:30 a.m. London time:
Stocks
- The Stoxx Europe 600 fell 0.5% as of 8:18 a.m. London time
- S&P 500 futures were little changed
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index fell 0.4%
- The MSCI Emerging Markets Index fell 0.9%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro was unchanged at $1.0740
- The Japanese yen rose 1.1% to 130.08 per dollar
- The offshore yuan fell 0.2% to 6.8072 per dollar
- The British pound was little changed at $1.2118
Cryptocurrencies
- Bitcoin rose 0.2% to $21,892.59
- Ether rose 0.7% to $1,551.35
Bonds
- The yield on 10-year Treasuries was little changed at 3.66%
- Germany’s 10-year yield advanced three basis points to 2.34%
- Britain’s 10-year yield advanced five basis points to 3.34%
Commodities
- Brent crude fell 0.3% to $84.25 a barrel
- Spot gold rose 0.4% to $1,870.06 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson.
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