(Bloomberg) — European stocks declined and US equity futures pared gains as the prospect that central banks will keep interest rates high to fight inflation hurt sentiment.
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The Stoxx 600 Index fell 0.3%. In individual moves, Adevinta ASA soared after the European classifieds company said it received a takeover proposal from private equity investors including Blackstone Inc. and Permira. A modest advance in US contracts followed heavy losses on Wall Street Thursday as traders responded to the hawish tone from the Federal Reserve this week.
The euro weakened after figures showed private-sector activity in France and Germany continued to shrink in September, with demand for goods and services missing economist estimates.
Global central banks this week stressed that they remain vigilant about the risks of inflation and warned investors against premature expectations of rate cuts. The increasing risk that monetary policy will lead to recession is prompting investors to dump stocks at the fast pace since December, strategists at Bank of America Corp. said.
Equity funds had outflows of $16.9 billion in the week through Sept. 20, according to a note from the bank citing EPFR Global data. The team led by Michael Hartnett said persistently high interest rates could lead to a hard economic landing in 2024, and result in “pops and busts” in financial markets.
Fresh signs of resilience in the US labor market reinforced the case for the Fed’s stance of holding interest rates higher for longer. Applications for US unemployment benefits fell to the lowest level since January last week, figures out Thursday showed.
The Bloomberg dollar index was steady. Treasury yields were broadly flat after the rate on the 10-year note reached 4.5%, the highest level since 2007, in the wake of the strong labor data.
“Stock markets are struggling to gain a foothold as investors rotate to cash and bonds, with bonds now offering similar returns for less risk in many jurisdictions,” analysts at Rand Merchant Bank in Johannesburg said in a note. “Investors are growing increasingly nervous over the prospects for growth in equity markets as the threat of stagflation remains a reality for many countries, with higher rates and higher oil and food prices driving the narrative.”
The yen weakened after the Bank of Japan held interest rates, its 10-year yield target and forward guidance unchanged. The central bank reiterated its expectation that inflation is decelerating.
In Asian stock trading, a region-wide equity index retraced early declines. Chinese shares rallied, a move that likely reflects “short covering on expectations of more policy support measures over the weekend, just like the government’s moves in every weekend this month,” said Steven Leung, an executive director at Uob Kay Hian Hong Kong Limited.
Oil rose, in part supported by news that Russia would ban exports of diesel-type fuel and gasoline. European natural gas prices fell as Chevron Corp. and labor unions in Australia agreed to end strikes at major export plants that roiled the market for more than a month.
Key events this week:
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 0.4% as of 9 a.m. London time
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S&P 500 futures were little changed
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Nasdaq 100 futures rose 0.3%
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Futures on the Dow Jones Industrial Average were little changed
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The MSCI Asia Pacific Index rose 0.3%
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The MSCI Emerging Markets Index rose 0.8%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro fell 0.1% to $1.0649
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The Japanese yen fell 0.5% to 148.26 per dollar
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The offshore yuan rose 0.2% to 7.2994 per dollar
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The British pound fell 0.3% to $1.2267
Cryptocurrencies
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Bitcoin rose 0.3% to $26,670.27
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Ether rose 0.5% to $1,595.37
Bonds
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The yield on 10-year Treasuries declined two basis points to 4.47%
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Germany’s 10-year yield declined three basis points to 2.71%
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Britain’s 10-year yield declined three basis points to 4.28%
Commodities
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Brent crude rose 0.5% to $93.78 a barrel
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Spot gold rose 0.4% to $1,927.59 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson.
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