Risk-Off Sentiment Returns With Focus on Inflation: Markets Wrap

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(Bloomberg) — Risk-off sentiment returned to markets on Thursday as concern about inflation and the global economy overshadowed the Bank of England’s move to restore calm.

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US futures fell as European stocks extended a selloff that’s caused valuations to drop to their lowest since 2012 and Hong Kong’s Hang Seng Tech Index touched its lowest since inception.

The dollar climbed versus all of its Group-of-10 peers and Treasuries slumped as investors focused on expectations the Federal Reserve will continue to deliver aggressive interest-rate hikes. The pound snapped a two-day gain and UK gilt yields rose as Prime Minister Liz Truss defended a giant package of unfunded tax cuts that sent markets into turmoil.

European bond yields also rose as investors digested the latest inflation data and commentary from European Central Bank officials. Euro-area economic confidence dropped to the lowest since 2020.

“Other than the dollar, there are not many assets that are trading constructively,” said Julia Raiskin, Asia-Pacific head of markets for Citigroup Inc. “The markets are very pessimistic. Investors are fairly on the sidelines.”

Former Bank of England Governor Mark Carney accused the UK government of “undercutting” the nation’s economic institutions, and said that its fiscal plans were to blame for the drop in the pound and bonds.

Simon Wolfson, the boss of Next Plc and a Conservative peer, also appeared to blame the Tory government for a crash in the pound and a worsening outlook for UK inflation, which the company cited, as it lowered guidance for sales and profits.

Next’s shares fell as much as 9.8% in London and an index of retailers plunged to the lowest in a decade. In other notable moves, Porsche AG rose after the largest initial public offering in Europe in more than a decade.

Investors are contending with threats posed by discordant moves from central banks over the past few days, with Fed officials adamant on further monetary tightening, the BOE unveiling a £65 billion ($71 billion) plan to support government debt and authorities in Asia trying to prop up weakening currencies.

“The central bank is in a very difficult position right now,” Julie Biel, Kayne Anderson Rudnick portfolio manager and senior research analyst, said of the BOE in an interview with Bloomberg TV. “Everyone has been a little bit backed into a corner in seeing the volatility and market reaction.”

Fed officials continued to hammer home the central bank’s hawkish outlook, with Atlanta President Raphael Bostic saying he backs raising rates by a further 1.25 percentage points by the end of this year. Meanwhile, the People’s Bank of China said it will accelerate usage of targeted loans to ensure deliveries of property projects and will increase such loans when needed.

In other news, the London Metal Exchange is launching a discussion paper that marks the first step toward a potential ban on new supplies of Russian metal, according to people familiar with the matter. Separately, the European Commission announced an eighth package of sanctions to target Russia that would include a price cap on its oil exports.

Meanwhile, Russia vowed to go ahead with the annexation of the parts of Ukraine that its troops currently control after UN-condemned votes, putting the Kremlin on a fresh collision course with the US and its allies.

How much damage is a strong dollar causing? That’s the theme of this week’s MLIV Pulse survey. It’s brief and we don’t collect your name or any contact information. Please click here to share your views.

Key events this week:

  • US initial jobless claims, GDP, Thursday

  • Fed’s Loretta Mester, Mary Daly speak at events, Thursday

  • China PMI, Friday

  • Euro zone CPI, unemployment, Friday

  • US consumer income , University of Michigan consumer sentiment, Friday

  • Fed’s Lael Brainard and John Williams speak, Friday

Some of the main moves in markets:

Stocks

  • Futures on the S&P 500 fell 1% as of 6:30 a.m. New York time

  • Futures on the Nasdaq 100 fell 1.4%

  • Futures on the Dow Jones Industrial Average fell 0.8%

  • The Stoxx Europe 600 fell 1.4%

  • The MSCI World index rose 1.1%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.4%

  • The euro fell 0.5% to $0.9691

  • The British pound fell 0.4% to $1.0848

  • The Japanese yen fell 0.4% to 144.72 per dollar

Cryptocurrencies

  • Bitcoin fell 0.7% to $19,423.58

  • Ether fell 1.1% to $1,335.42

Bonds

  • The yield on 10-year Treasuries advanced 10 basis points to 3.84%

  • Germany’s 10-year yield advanced 14 basis points to 2.26%

  • Britain’s 10-year yield advanced 17 basis points to 4.18%

Commodities

  • West Texas Intermediate crude rose 0.7% to $82.70 a barrel

  • Gold futures fell 0.8% to $1,656.80 an ounce

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