European Stocks, U.S. Futures Rebound; Yields Drop: Markets Wrap

(Bloomberg) — U.S. index futures and European stocks showed signs of recovery from Tuesday’s selloff as Treasury yields eased.

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S&P 500 futures rose 0.8% and the Stoxx Europe 600 gauge rebounded from a two-month low. Ten-year Treasury rate shed three basis points. The moves signaled a turnaround from Asian hours, when equities extended losses amid concerns over stagflation and China Evergrande Group’s debt crisis. Oil slid after an increase in U.S. crude stockpiles.

The moderation in yields provides a breather to investors concerned about valuations, as higher rates reduce the present value of equity cash flows. However, the risks that sparked this week’s slump remain. The Federal Reserve has turned more hawkish, a political standoff over U.S. debt ceiling is going to the wire, and an energy crunch is sparking fears of high inflation and low growth.

“Many things are in flux: the pandemic is not over, the supply chain bottlenecks we are seeing are affecting all sorts of prices and we’ll need to see how it plays out because the results are not clear in terms of inflation,” Belita Ong, Dalton Investments chairman, said on Bloomberg Television.

Technology stocks, which were at the center of Tuesday’s slump, rebounded. Europe’s main index for the subgroup rose for the first time in four days, while December contracts on the Nasdaq 100 Index added 1.1%.

A global equity rally stalled this week as investors reeled from surging energy costs at the same time central banks began laying down plans to withdraw some of the pandemic stimulus. U.S. consumer confidence dropped in September for a third straight month, suggesting concerns over the delta variant and higher prices continued to dampen sentiment.

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MSCI Inc.’s gauge of Asian stocks had the biggest drop in six weeks. Japan fell as two candidates took part in a runoff vote for leader of the ruling party. The Chinese benchmark fell to the lowest level this month.

Investors are also watching a deadline to raise the U.S. debt ceiling. During a Senate hearing, Fed Chair Jerome Powell and Treasury Secretary Janet Yellen both warned that a U.S. default would have catastrophic consequences. Republicans blocked a Democratic move in the Senate to raise the limit.

Futures in Brent crude and West Texas Intermediate slumped at least 1% each. U.S. crude stockpiles expanded by more than 4 million barrels last week, according to the industry-funded American Petroleum Institute.

Elsewhere, the pound traded around the lowest since January as expectations of higher rates were offset by surging energy prices and panic-buying that are keeping investors cautious. Bitcoin was trading around $42,000.

In the latest Evergrande news:

• The developer is selling a stake in its regional bank for about 10 billion yuan ($1.5 billion) as it offloads assets to address its debt crisis

• It is facing another bond interest payment after giving no sign that it had paid a separate one last week

• Evergrande holder Chinese Estates suspends trading in Hong Kong

• Fitch Ratings cut the credit rating to C from CC, one notch above the equivalent default level, to reflect “that Evergrande is likely to have missed interest payment on senior unsecured notes”

Here are some events to watch this week:

• Central bank chiefs Andrew Bailey (BOE), Haruhiko Kuroda (BOJ), Christine Lagarde (ECB) and Jerome Powell (Fed) participate in an ECB Forum panel, Wednesday

• House Financial Services Committee hearing on the Fed, Treasury’s pandemic response, Thursday

• China Caixin manufacturing PMI, non-manufacturing PMI, Thursday

• Univ. of Michigan sentiment, ISM manufacturing, U.S. construction spending, spending/personal income, Friday

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 1% as of 8:29 a.m. London time

• Futures on the S&P 500 rose 0.8%

• Futures on the Nasdaq 100 rose 1%

• Futures on the Dow Jones Industrial Average rose 0.6%

• The MSCI Asia Pacific Index fell 1.2%

• The MSCI Emerging Markets Index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro fell 0.1% to $1.1667

• The Japanese yen rose 0.2% to 111.32 per dollar

• The offshore yuan was little changed at 6.4684 per dollar

• The British pound was unchanged at $1.3537

Bonds

• The yield on 10-year Treasuries declined three basis points to 1.51%

• Germany’s 10-year yield was little changed at -0.21%

• Britain’s 10-year yield declined two basis points to 0.97%

Commodities

• Brent crude fell 1.9% to $77.62 a barrel

• Spot gold rose 0.3% to $1,739.94 an ounce

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