U.S. Futures Gain With Stocks; Bond Yields Rise: Markets Wrap

U.S. equity-index futures gained on Wednesday along with stocks in Europe as traders assessed the latest news on the omicron variant and the Federal Reserve’s signals of stepped-up efforts to curb elevated inflation. Bonds declined.

S&P 500 and Nasdaq 100 futures pushed higher after U.S. stocks slumped in the wake of Fed Chair Jerome Powell’s hawkish pivot Tuesday. The U.S. 10-year Treasury yield climbed, though it stayed below 1.50%. The gap between yields on 5-year and 30-year Treasuries was around the narrowest since March last year. Crude oil and commodity-linked currencies rebounded.

Travel stocks and carmakers led a broad-based gain in the Stoxx Europe 600 index, all but wiping out Tuesday’s decline that capped only the third monthly loss for the benchmark this year. 

Volatility is buffeting markets as investors scrutinize whether the pandemic recovery can weather diminishing monetary policy support and potential risks from the omicron virus variant. Global manufacturing activity stabilized last month, purchasing managers’ gauges showed Wednesday, and while central banks are scaling back ultra-loose settings, financial conditions remain favorable in key economies. 

“Tapering will likely be welcomed by the market over the long-term, as it suggests underlying economic strength,” Richard Saperstein, chief investment officer at Treasury Partners, said in emailed comments. “Assuming there is eventual vaccine efficacy against the omicron variant, economic activity will remain strong as the economic growth engine migrates from goods to services. Our advice to investors is to avoid long-term bonds and use recent stock-market declines to upgrade portfolio quality.”

Powell said the next Fed meeting should discuss whether to wrap up bond purchases a few months sooner, and retired the word “transitory” to describe high inflation. That could open the door to earlier interest-rate hikes. Money markets show about 60 basis points of increases priced in by end-2022.

The flattening Treasury yield curve “doesn’t suggest imminent doom for the equity market in and of itself,” Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., said on Bloomberg Television. “Alarm bells go off in terms of recession” when the curve gets closer to inverting, she said.

Meanwhile, the omicron variant continues to spread around the globe, though symptoms so far appear to be relatively mild. The Biden administration plans to tighten rules on travel to the U.S., and Japan said it would bar foreign residents returning from 10 southern African nations.

Elsewhere, MSCI Inc.’s Asia-Pacific share index jumped the most since mid-October, and emerging-market stocks snapped three days of declines. Turkey’s lira pared some of this week’s precipitous decline after the central bank intervened in currency markets for the first time since 2014. Bitcoin was steady around $57,000.

Some key events to watch this week:

• U.S. construction spending, ISM Manufacturing, Fed’s Beige Book on Wednesday
• OPEC, allies may re-evaluate plans for reviving oil supplies, Thursday
• U.S. initial jobless claims, Thursday
• U.S. jobs report, factory orders, durable goods on Friday

Some of the main moves in markets:

Stocks

• Futures on the S&P 500 rose 1.2% as of 8:24 a.m. New York time
• Futures on the Nasdaq 100 rose 1.3%
• Futures on the Dow Jones Industrial Average rose 0.8%
• The Stoxx Europe 600 rose 1.2%
• The MSCI World index rose 0.5%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.1327
• The British pound rose 0.2% to $1.3319
• The Japanese yen was little changed at 113.25 per dollar

Bonds

• The yield on 10-year Treasuries advanced three basis points to 1.47%
• Germany’s 10-year yield advanced two basis points to -0.33%
• Britain’s 10-year yield advanced four basis points to 0.85%

Commodities

• West Texas Intermediate crude rose 2.6% to $67.87 a barrel
• Gold futures rose 0.5% to $1,785.80 an ounce

Source: Bloomberg