Stocks Rise and US Futures Waver Before Powell: Markets Wrap

(Bloomberg) — European stocks advanced and US equity futures fluctuated as investors looked to commentary due later from Federal Reserve Chair Jerome Powell that may shape views on the central bank’s rate path.

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The Stoxx Europe 600 was modestly higher as energy stocks outperformed. BP Plc climbed more than 4% as the oil major hiked its dividend and extended share buybacks after posting record profit for 2022. S&P 500 and Nasdaq 100 contracts were about 0.1% lower. A gauge of Asian shares pared gains, still trimming its losses from the biggest two-day drop in four months.

The dollar steadied after weakening against all members of the Group of 10 earlier, while Treasuries clawed back some of the two-day rout that was sparked by traders ramping up bets on future Fed tightening. The recent moves have taken the shine off the best start to a year for cross-asset returns since 1987.

Investors are weighing whether Powell may emphasize that optimism for rate cuts later in 2023 is probably misplaced. Atlanta Fed President Raphael Bostic said Monday the strong jobs data on Friday raises the possibility that the central bank will need to increase interest rates to a higher peak than policy makers had previously expected.

Powell may reiterate some of the points he made even before the latest jobs report, which justified the Fed’s rate hikes last year, according to Jack McIntyre, a portfolio manager at Brandywine Global Investment Management LLC. “I expect that Powell will drive home that point that they’ve done a lot and there’ll be a tightening that is going to impact the economy later on this year,” he said on Bloomberg Television.

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Citigroup sees dollar strength as a key risk to the stock markets. “The view is very much that it’s going to be a difficult six to eight months for equity markets globally, not just in Asia,” Mohammed Apabhai, head of Asia-Pacific trading strategies at Citigroup, said on Bloomberg Television. “But if the dollar rallies back to anything more than what we are projecting, emerging market will get punished.”

The yen gained after Japan unexpectedly reported nominal wages jumped in December by the biggest margin in almost 26 years, stoking market bets that the central bank will adjust or back away from its stimulus program under a new governor.

Some of the strongest gains in Asian equities trading Tuesday were in tech stocks listed in Hong Kong — providing a sharp contrast to the decline on Wall Street Monday. Baidu Inc. surged as much as 18% after affirming it will launch a ChatGPT-like bot in March.

In India, Adani Group’s stocks climbed, pausing a rout that began when US short-seller Hindenburg Research made fraud allegations against the conglomerate. The Group’s flagship Adani Enterprises Ltd. gained as much as 25% in Tuesday trading, as the Adani family’s move to prepay $1.11 billion of borrowings allays some investor fears.

The air of caution in global markets is also being reinforced by geopolitical concerns. The US is preparing to impose a 200% tariff on Russian-made aluminum, while the US started to recover some parts from the Chinese balloon that a fighter jet shot down off the coast of South Carolina. Biden administration officials said the US was still trying to figure out how much senior leaders in Beijing knew about the alleged spy mission.

Elsewhere, oil rose for a second session after Saudi Arabia unexpectedly raised its crude prices to Asia, signaling confidence in the demand outlook. Gold edged higher.

Read: Bond Traders Quickly Come Around to Fed’s View on Peak for Rates

Key events:

• US trade, Tuesday

• Fed Chair Jerome Powell interviewed by David Rubinstein at the Economic Club of Washington, Tuesday

• President Joe Biden delivers the State of the Union address before Congress, Tuesday

• US wholesale inventories, Wednesday

• New York Fed President John Williams is interviewed at Wall Street Journal live event, Wednesday

• US initial jobless claims, Thursday

• ECB President Christine Lagarde participates in EU leaders summit, Thursday

• Bank of England Governor Andrew Bailey appears before Treasury Committee, Thursday

• US University of Michigan consumer sentiment, Friday

• Fed’s Christopher Waller and Patrick Harker speak, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.2% as of 8:23 a.m. London time

• S&P 500 futures were little changed

• Nasdaq 100 futures fell 0.1%

• Futures on the Dow Jones Industrial Average fell 0.1%

• The MSCI Asia Pacific Index rose 0.3%

• The MSCI Emerging Markets Index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro fell 0.1% to $1.0712

• The Japanese yen rose 0.3% to 132.21 per dollar

• The offshore yuan rose 0.1% to 6.7975 per dollar

• The British pound fell 0.1% to $1.2002

Cryptocurrencies

• Bitcoin fell 0.1% to $22,886.94

• Ether fell 0.5% to $1,630.58

Bonds

• The yield on 10-year Treasuries was little changed at 3.63%

• Germany’s 10-year yield advanced two basis points to 2.32%

• Britain’s 10-year yield advanced one basis point to 3.25%

Commodities

• Brent crude rose 2% to $82.61 a barrel

• Spot gold rose 0.3% to $1,873.64 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Jason Scott, Matthew Burgess and Tony Jordan.

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