Bear market kept at bay as S&P futures lift
‘A lot of fund managers have cut their equity allocations and raised cash, though we think this is a correction rather than a bear market’
London — US stock index futures rebounded ahead of the Wall Street open on Friday, keeping fears of a bear market at bay, though Twitter shares slid after Elon Musk put his $44bn deal for the company temporarily on hold.
Markets are becoming anxious about the possibility of recession, with the S&P getting close to a bear market on Thursday, at nearly 20% off its January record high.
In an interview late on Thursday, US Federal Reserve chair Jerome Powell said the battle to control inflation would “include some pain”.
Powell repeated his expectation of half-percentage-point interest rate rises at each of the Fed's next two policy meetings, while pledging that “we're prepared to do more”.
The war in Ukraine has aggravated supply chain disruptions and inflationary pressures already in place after more than two years of the Covid-19 pandemic, but stocks enjoyed a bounce on Friday.
“There's an awful lot of negative sentiment out there, we're looking at a 40% chance of recession,” said Patrick Spencer, vice-chair of equities at Baird Investment Bank.
“A lot of fund managers have cut their equity allocations and raised cash, though we think this is a correction rather than a bear market.”
S&P futures jumped 1.09% after the S&P index dropped 0.13% overnight, though the index is still eyeing a sixth straight week of declines.
Twitter shares fell 17.7% to $37.10 in pre-market trading after Musk suspended his plans to buy the company, saying he was awaiting details in support of calculations showing spam and fake accounts represent less than 5% of users.
“This is straight out of the Musk playbook, keeping shareholders on their toes,” said Michael Hewson, chief markets analyst at CMC Markets.
MSCI's world equity index rose 0.34% after hitting its lowest since November 2020 on Thursday, though it was heading for a 4% fall on the week, its sixth straight week of losses.
European stocks rallied 1.44% and Britain's FTSE 100 gained 1.64%.
Markets are likely to experience a short-term rebound before resuming the sell-off which has sent Wall Street's Nasdaq tech index down over 25% since the beginning for of the year, BofA analysts wrote in a weekly strategy note.
Investors liquidated global equity funds worth $10.53bn in the week ended May 11, compared with $1.65bn of net selling in the previous week, according to Refinitiv Lipper.
The US dollar was unchanged at 104.77 against a basket of currencies, but remained close to the previous day’s 20-year highs due to safe-haven demand.
Russia has bristled over Finland's plan to apply for Nato membership, with Sweden potentially following suit.
Moscow called Finland’s announcement hostile and threatened retaliation, including unspecified “military-technical” measures.
The dollar rose 0.47% to ¥128.83, while the euro was steady at $1.038, above Thursday’s five-year lows.
Headline inflation in the eurozone will fall in the second half of the year but so-called core prices, which strip out food and energy, will keep rising, the European Central Bank’s vice-president Luis de Guindos said on Friday.
Cryptocurrency bitcoin also turned higher, cracking through $30,000 after the collapse of TerraUSD, a so-called stablecoin, drove it to a 16-month low of about $25,400 on Thursday.
“Some traders may see the sharp fall this month as an opportunity to buy the dip, but given the hugely volatile nature of the coins, the crypto house of cards could tumble further,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
The moves higher in equities were mirrored in US treasuries, with the benchmark US 10-year yield edging up to 2.8985% from a close of 2.817% on Thursday.
The policy-sensitive 2-year yield was at 2.582%, from a close of 2.522%.
German 10-year government bond yields edged up to 0.8870%.
MSCI’s broadest index of Asia-Pacific shares outside Japan rallied 1.6% from Thursday's 22-month closing low. Japan's Nikkei stock index jumped 2.64%.
In China, the blue-chip CSI300 index was up 0.75% and Hong Kong's Hang Seng rose 2.68%, encouraged by comments from Shanghai's deputy mayor that the city may be able to start easing some tough Covid-19 restrictions in May.
Oil prices were headed for their first weekly loss in three weeks as worries about inflation and China’s Covid-19 lockdowns slowing global growth offset concerns about dwindling supplies from Russia.
US crude rose 1.99% to $108.10 a barrel, and global benchmark Brent crude was up 1.86% at $109.45 per barrel.
Spot gold, which has been under pressure from the soaring dollar, fell 0.3% to a three-month low of $1,806.49/oz.
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