US Futures Tick Higher as ‘Normalcy’ Returns: Markets Wrap

(Bloomberg) — Stocks recouped some of Monday’s losses, with US futures posting modest gains as traders looked for bargains in the wreckage of the global market selloff.

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After one of the most dramatic days in recent memory, some calm seemed to be returning to financial markets and many investors said there’s no reason to fear an imminent US recession. Buying the S&P 500 after a decline of 5% has usually been profitable in the past four decades, according to Goldman Sachs Group Inc. strategists.

Trading was choppy in some markets. The yen weakened 1.5%, only to claw back most of the loss. European stocks erased early gains. Meanwhile, Treasuries retreated, with the 10-year yield heading for the first increase in almost two weeks. The dollar strengthened.

“Some normalcy has started to return to the markets,” said Mohit Kumar, chief economist for Europe at Jefferies International Ltd. “The violent market moves over the last few sessions, in our view, present a buying opportunity.”

Japan continued to be the epicenter of volatility, with whipsaw moves setting off a circuit breaker for Nikkei futures. The Topix index surged 9.3% after plunging 12% on Monday. According to JPMorgan Chase & Co., the unwinding of the carry trade is only about 50% complete.

The respite may be temporary, however, depending on the next signals from the US economy and the Federal Reserve’s response. Wall Street’s “fear gauge,” the VIX index, remains at the highest level since 2020 after spiking the most on record yesterday. And traders are rushing to insure their portfolios against an extreme market crash, in an echo of the chaotic period at the start of the pandemic.

“I’m expecting the month of August to be red-tainted,” said Christopher Dembik, senior investment adviser at Pictet Asset Management. The further unraveling of the yen carry trade will continue to trigger margin calls and losses, while a recovery in stocks hinges on central bank measures and earnings, he said.“We don’t expect a lull in the coming days.”

Treasury yields rose across the curve, with the benchmark 10-year yield climbing six basis points to 3.85%. The yield had fallen as low as 3.67% Monday before being pushed back up by the stronger-than-expected US ISM services report. A gauge of the dollar gained for the first time in three days.

Fed Rate Cuts

“The hotter-than-expected ISM services report slowed the bleeding on Wall Street,” said Matt Simpson, a senior market strategist at City Index Inc. “So we’re not seeing a risk-on rally as such, but a healthy correction after an unhealthy selloff, triggered by investors stampeding for a tiny exit.”

San Francisco Fed President Mary Daly said the labor market is softening and indicated the US central bank should begin cutting interest rates in coming quarters, but stopped short of concluding the jobs market has begun seriously weakening. The swaps market is pricing in a near 50-basis-point Fed rate cut in September.

In commodities, oil held near a seven-month low as a halt in production at Libya’s biggest field refocused attention on the Middle East. Gold steadied after being pulled into Monday’s global rout, when it slumped as some traders cut holdings to cover potential margin calls. Industrial metals found firmer footing, with copper, aluminum and zinc all steady.

Bitcoin inched back to briefly top $56,000 after steep losses in most major cryptocurrencies Monday.

Key events this week:

• China trade, forex reserves, Wednesday

• US consumer credit, Wednesday

• Germany industrial production, Thursday

• US initial jobless claims, Thursday

• Fed’s Thomas Barkin speaks, Thursday

• China PPI, CPI, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.4% as of 5:13 a.m. New York time

• Nasdaq 100 futures rose 0.4%

• Futures on the Dow Jones Industrial Average rose 0.2%

• The Stoxx Europe 600 fell 0.2%

• The MSCI World Index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%

• The euro fell 0.3% to $1.0917

• The British pound fell 0.5% to $1.2714

• The Japanese yen fell 0.3% to 144.58 per dollar

Cryptocurrencies

• Bitcoin rose 0.8% to $54,824.38

• Ether rose 0.8% to $2,455.84

Bonds

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

• Germany’s 10-year yield declined two basis points to 2.17%

• Britain’s 10-year yield advanced two basis points to 3.89%

Commodities

• West Texas Intermediate crude was little changed

• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu, Aya Wagatsuma and Michael Msika.

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