US futures, bonds swing as recession fears linger

Bloomberg

US stock-index futures and Treasuries fluctuated between the gains and losses amid concern over a global economic slowdown.
Contracts on the S&P 500 and Nasdaq 100 gauges were little changed, while Europe’s Stoxx 600 climbed the most since June 24. The two- and 10-year US yield curve remained inverted as investors awaited the minutes of the Federal Reserve’s last meeting to gauge its policy priorities. The British pound rises, shrugging off
political drama in London.
While bargain hunters chasing technology stocks boosted US equity gauges on Tuesday, it only helped to mask a deepening slump in stocks linked to economic activity, such as energy, commodity and industrial names. A renewed spike in China’s Covid-19 cases and a worsening gas crisis in Europe signalled that a worldwide slowdown is coming even as central banks tighten monetary policy to contain consumer prices.
“Markets are caught between two opposing forces and that’s the place we are going to be in for the next few months,” Diana Amoa, chief investment officer for long-biased strategies at Kirkoswald Asset Management, said on Bloomberg Television. “We go from the trading lower growth to trading the high
inflation.”
The odds of a US recession in the next year are now 38%, according to latest forecasts from Bloomberg Economics. Bond traders are penciling in a policy turnaround by the Federal Reserve, with current hawkishness giving way to interest-rate cuts in the middle of 2023.
In Europe, the equity benchmark jumped almost 2% on Wednesday as the cheapest valuations in two years attracted traders betting on a strong start to the earnings-reporting season. Travel and leisure companies were the best-performing subgroup on the Stoxx 600.
Bonds traded choppily from Europe to the US. The 10-year Treasury yield was little changed at 2.80%, while the two-year rate also traded at a similar level or slightly higher.
The British pound strengthened after overnight shocks that saw two senior colleagues of Prime Minister Boris Johnson resigning amid a series of scandals involving the government. The currency gained 0.3%, after dropping below the key $1.20 level on Tuesday.
In China, Shanghai launched mass testing for Covid in nine districts after detecting cases the past two days, fueling concerns that the financial hub may once again find itself locked down in pursuit of Covid Zero. The Shanghai Composite Index slid the most since May 24.