(Bloomberg) – The pound rallied and UK bonds surged as more of Prime Minister Liz Truss’ unfunded tax cuts were expected to be undone. US stock futures were higher.
Chancellor Jeremy Hunt is due to make a statement later on Monday on measures to support fiscal sustainability, a UK official has said. It’s the start of what could be a particularly torrid week for British assets, with the beleaguered Truss battling to salvage her post as Prime Minister after the Bank of England ended its gold-buying program on Friday. emergency bonds.
Contracts for the S&P 500 and Nasdaq 100 rose after falling on Friday amid high Treasury yields and expectations of faster inflation. US yields pared that move on Monday. Europe’s Stoxx 600 index gave up its first gains, while an indicator for Asian equities retreated. The dollar eased against its Group of 10 counterparts, offering a breath of fresh air to the harassed currency markets.
“I think we are in a period where the credibility of the UK is continually in question and UK assets remain incredibly volatile for a significant period of time,” said Benjamin Jones, director of Invesco Macro Research, on Bloomberg. Television. “Watching the gilt market will be absolutely critical to understanding if the market thinks Hunt is more stable and if he will be able to push through those policies.”
Meanwhile, the outlook for U.S. consumer prices continues to fuel bets that the Federal Reserve could deliver huge rate hikes in its next two meetings, weighing heavily on the outlook for economic growth. and global markets.
Against this negative backdrop, investors must contend with news from Beijing, where President Xi Jinping said China’s global power had grown while warning of “dangerous storms” to come. There were few signs of a slowdown from the Covid-Zero campaign or housing market policies weighing on the economy. Xi also said China would prevail in its fight to develop strategically important technology amid growing tension with the United States.
The offshore yuan extended its gains against the dollar after China’s central bank halted liquidity withdrawals via medium-term loans for the first time in three months in a bid to stimulate the economy. Traders remained on guard for possible intervention to support the yen, which is near a 32-year low and within reach of the key 150 level against the greenback.
Fed officials, in their latest comments, hinted that they were ready to raise rates higher than expected. Kansas City Fed President Esther George said the terminal rate may need to be higher to cool prices. The San Francisco Fed’s Mary Daly said she was “very supportive” of an increase to restrictive levels and between 4.5% and 5% “is the most likely outcome”.
“Stick, persistent and widespread inflation means the Fed must continue to raise rates aggressively,” Victoria Greene, founding partner and chief investment officer at G Squared Private Wealth, wrote in a note. “Bonds continue to be a tough investment due to the Fed’s rapid rate hikes, but we’ve seen a lot priced in and market expectations are improving.”
Elsewhere in the markets, oil recouped some losses after a weekly tumble as fears of an economic slowdown continue to weigh on demand prospects. Gold edged higher on the weaker US Dollar and as growing fears of a global economic slowdown bolster the precious metal’s safe-haven status.
Key events this week:
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Earnings this week will provide clues to the strength of a slew of companies, including Bank of America Corp., China Telecom Corp., Contemporary Amperex Technology Co., Hindustan Unilever Ltd, Hong Kong Exchanges & Clearing Ltd., Goldman Sachs Group Inc., Johnson & Johnson, Netflix Inc., Tesla Inc. and United Airlines Holdings Inc.
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Making America’s Empire, Monday
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ECB Vice-President Luis de Guindos speaks on Monday
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China retail sales, industrial production, GDP, jobless survey, Tuesday
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U.S. Industrial Production, NAHB Housing Market Index, Tuesday
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Fed’s Neel Kashkari speaks on Tuesday
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Eurozone CPI, Wednesday
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UK CPI, PPI, retail price index, Wednesday
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US MBA mortgage applications, building permits, housing starts; Fed Beige Book, Wednesday
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The Fed’s Neel Kashkari, Charles Evans and James Bullard speak on Wednesday
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US existing home sales, initial jobless claims, Conference Board leading index, Thursday
Some of the major movements in the markets:
Shares
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The Stoxx Europe 600 was little changed at 8:30 am London time
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S&P 500 futures rose 0.8%
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Nasdaq 100 futures rose 1%
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Dow Jones Industrial Average futures rose 0.7%
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The MSCI Asia-Pacific index fell 0.8%
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The MSCI Emerging Markets Index fell 0.4%
Currencies
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro rose 0.2% to $0.9743
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The Japanese yen was little changed at 148.63 per dollar
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The offshore yuan rose 0.1% to 7.2110 to the dollar
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The pound rose 0.8% to $1.1259
Cryptocurrencies
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Bitcoin fell 0.4% to $19,264.28
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Ether was little changed at $1,310.35
Obligations
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The yield on 10-year Treasury bills fell six basis points to 3.96%
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Germany’s 10-year yield fell eight basis points to 2.27%
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The UK 10-year yield fell 25 basis points to 4.08%
Goods
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Brent rose 0.7% to $92.25 a barrel
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Spot gold rose 0.6% to $1,653.79 an ounce
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