Stocks rise with yields as Fed messages digested

Bloomberg

European stocks rise and US index futures pointed to a stronger open on Wall Street after two days of losses triggered by Federal Reserve signals that interest rates would continue to rise for a while yet.
Europe’s Stoxx index rises 0.8%, led by energy, banking and utilities, though shares stayed on track to snap a four-week rising streak. While the US S&P 500 index is down 1% so far this week, index futures on the benchmark gained 0.3%. Nasdaq contracts also advanced, while in New York premarket trading, chip equipment maker Applied Materials rise 4.1% after issuing a forecast-topping sales forecast. A host of tech names, including Nvidia Corp, Meta Platforms and Amazon.com, also gained.
The moves come a day after shares were knocked sharply lower by hawkish comments from St. Louis Fed President James Bullard, who said interest rates needed to rise at least to 5%-5.25% to curb inflation. His comments prompted markets to dial up their expectations for how high US rates might go.
The dollar retreated while Treasury yields extended their surge in the wake of Bullard’s comments. But Bullard is only the latest policymaker to warn markets that while inflation appears to be easing off multi-decade highs, policy needs to be tightened further to tame price pressures.
However, some investors said hawkish commentary did not necessarily mean rates would peak at higher levels than previously thought.
“The Fed wants to ensure their job is not getting undone, the language is still robust and that there’s still a coordinated effort from board members to push on the hawkish button,” James Athey, investment director at Abrdn Investment Management Ltd told Bloomberg Television. “That doesn’t mean the destination is necessarily a higher rate than where markets thought a week or two ago. I think they’re just trying to
downplay investor’s spirits a bit.”
Fears are mounting though, that relentlessly rising rates will hit economic growth, with a critical segment of the Treasury yield curve at the most steeply inverted in four decades — historically such an inversion has flagged recession in the world’s largest economy. Growth-sensitive copper and oil prices were poised for weekly losses, pressured by concerns over a worsening demand outlook.
Ellen Hazen, chief market strategist at F.L.Putnam Investment Management, said that if the Fed kept increasing rates at the current pace, “by the time they get the information that they’ve been successful in slowing the economy and slowing inflation, it might be too late.”
Earlier, Hong Kong’s benchmark Hang Seng Index enjoyed a third straight week of gains, thanks to China’s steps to support the property sector and ease Covid restrictions. On Friday, the benchmark’s tech gauge touched a two-month high, led by Alibaba, which missed
second-quarter revenues but upsized share buybacks.
Bitcoin was on course for a weekly gain even as the collapse of Sam Bankman-Fried’s FTX empire continues to rattle the crypto market.