US futures signal recovery after sober Fed speech: Markets roundup

(Bloomberg) — U.S. stock futures pointed to a recovery on Wall Street on Thursday, with European stocks rallying in sympathy as investors weighed mixed economic signals about the health of the U.S. economy and interest rates.

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Technology Nasdaq 100 contracts rose 0.5 percent after the benchmark ended down 1.5 percent on Wednesday. Those in the S&P 500 added 0.4%, with the European stock benchmark also rising.

The yield on 10-year Treasuries rose after falling on Wednesday amid indications from Federal Reserve officials that policy will tighten further. A closely watched portion of the U.S. yield curve remained near levels not seen in four decades, a sign of investor concern about the world’s largest economy.

In a scenario that has played out repeatedly in global markets in recent weeks, stocks were forced to pause their multi-day rally on Wednesday as stronger-than-expected U.S. economic data and a flurry of Fed spokes dampened hopes the U.S. central bank could to end its rate hike cycle earlier than expected.

“We are aware that every time global markets try to rally amid speculation that the end of the Fed’s tightening intentions may be in sight, the FOMC staff comes out with a new paragraph of hawkish narrative, about to suppress any prospect of irrational exuberance,” Simon Ballard, chief economist at First Abu Dhabi Bank, wrote in a note to investors.

With inflation only beginning to ease after hitting a decade high and a measure of U.S. retail sales expanding at the fastest pace in eight months, the message from Fed speakers is that they need to do more to to quell price pressure.

Another San Francisco Federal Reserve President, Mary Daley, said a pause in interest rate hikes was “off the table,” and New York Federal Reserve President John Williams said the central bank should avoid including risks to financial stability in their considerations.

Goldman Sachs Group Inc. raised its forecast for peak US interest rates to 5.25% at the top of the range from 5% previously.

But other signs suggest the world’s largest economy is losing steam as US consumers are squeezed by the highest inflation in four decades. Retailer Target Corp. downplayed estimates on Wednesday, saying a pullback from U.S. buyers had hit earnings.

“The overall macro outlook for the US economy is fragile, and this scenario continues to favor a modest easing — and then a plateau — in the pace of gradual tightening,” Ballard wrote.

Oil extended losses as investors shifted their focus back to concerns about the outlook for demand after geopolitical tensions eased.

Gold edged lower in Asia as expectations of a hawkish Fed outweighed hopes of an impending slowdown in rate hikes.

In Britain, Chancellor Jeremy Hunt is expected to detail spending cuts as well as tax rises to fix the hole in the public finances, but he will have to tread carefully as a new round of austerity could further damage the economy , which is facing its worst live press spending in four decades.

Read more: Watch UK domestic stocks as Chancellor Hunt delivers Budget

The pound rallied, putting it on the verge of breaking above $1.20 after falling to parity in September. While the consensus is for Hunt to stick with fiscal orthodoxy, traders are wary of being caught off guard again.

Key events this week:

  • Eurozone CPI Thursday

  • US housing starts, initial jobless claims, Thursday

  • The Fed’s Neil Kashkari, Loretta Mester talk, Thursday

  • The US Conference Board’s leading index, sales of existing homes, Friday

–With help from Richard Henderson.

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