Stocks climb as investors mull oil drop, rate fears

Bloomberg

Stocks in Europe and US futures climbed on Thursday as investors assessed attractive valuations and a drop in oil prices against hawkish messages from central bankers on reining in inflation.
Europe’s Stoxx 600 Index rose 0.5%, with construction and consumer shares leading gains, while energy stocks were laggards. Trading volumes are lighter than usual, with UK markets shut for holidays to mark Queen Elizabeth II’s Platinum Jubilee. S&P 500 contracts climbed 0.5% and those on the Nasdaq 100 were 0.7% higher.
Crude oil slid on a report that Saudi Arabia is ready to pump more oil if Russian output declines. Opec+ is scheduled to meet to discuss supply policy.
US manufacturing activity and job openings data Wednesday fueled concern the Federal Reserve will need to get more restrictive to slow runaway price gains. Treasuries held losses, with 10-year yields above 2.90%. The dollar slipped while the yen held near 130 per dollar after its recent decline on the prospect of widening interest rate differentials with the US.
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon sounded alarm bells on the economy, warning investors to prepare for an economic “hurricane.” In contrast, JPMorgan’s bullish strategist, Marko Kolanovic, expects stocks to rebound by end of year, underscoring increasing debate as markets are buffeted by challenges from tightening monetary policy to war in Ukraine.
“There’s been a large correction in some stocks; those corrections led to valuations that are way more attractive that can benefit medium-to long-term investors, especially in Europe and the emerging markets space,” Vanguard Asset Services Ltd. Investment Strategist Giulio Renzi Ricci said on Bloomberg TV.
Investors are on edge over whether the US central bank’s tighter policies will induce a recession. A chorus of Fed officials has fallen behind calls to keep hiking to counter price pressures. Mary Daly of the San Francisco Fed and her colleague James Bullard of St. Louis both backed a plan to raise rates by 50 basis points this month, while Richmond’s Thomas Barkin said it made ‘perfect sense’ to tighten policy.
“We do see the rise in probability of a recession in the second half of this year, potentially persisting into 2023 as the Fed continues to battle inflation,” Tracie McMillion, Wells Fargo Investment Institute head of global asset allocation strategy, said on Bloomberg Television.
McMillion also cautioned that markets haven’t fully priced in the impact of the Fed’s balance-sheet reduction. “The impact of quantitative tightening starting to roll off the Fed’s balance sheet this month is really untested and unprecedented. Our guess is that it’s probably not fully priced into markets,” she said.
An MSCI Inc. gauge of Asia-Pacific shares retreated for a second day on Thursday, with Hong Kong leading declines amid tough virus curbs. Chinese stocks outperformed. Beijing ordered state-owned policy banks to set up an 800 billion yuan ($120 billion) line of credit for infrastructure projects as it leans on construction to stimulate an economy battered by the coronavirus lockdowns.
The Stoxx Europe 600 rose 0.5% as of 9:45 am London time and futures on the S&P 500 also climb 0.5%.
While futures on the Nasdaq 100 rose 0.7%, futures on the Dow Jones Industrial Average gain 0.4%.
The MSCI Asia Pacific Index falls 0.7% and the MSCI Emerging Markets Index also drop by as much as 0.7%.