(Bloomberg) — Stocks and US stock futures extended their decline at the end of the week, confirming expectations of monetary policy tightening and a global economic slowdown.
Energy stocks led a decline in Europe on Friday as oil headed for its fourth weekly loss. Banks slumped as Credit Suisse Group plunged to a record low, while denying a report considering an exit from the US market. The MSCI Asia Pacific Index is set for its sixth weekly decline, the longest streak since May, after the S&P 500 closed at its lowest level since June.
Strategists are giving up a year-end rally in European stocks as Goldman Sachs Group Inc. Its year-end target for the S&P index is to 3600 from 4300, arguing that a dramatic shift in expectations of higher interest rates will affect valuations.
Investors are flocking to cash and shying away from nearly every other asset class as they turn the most pessimistic since the global financial crisis, according to strategists at Bank of America Corp.
The 10-year Treasury yield settled near 3.7%, after jumping to its highest level in a decade. Bond yields fell in Europe, while bond yields rose in Asia, led by a jump of more than 20 basis points in Australia as trading resumed there after a holiday.
The dollar scale extended its gains to another record high. The yen was flat as traders braced for more action after Japan intervened to support the ailing yen for the first time since 1998.
Japan’s intervention did not address the underlying cause of the yen’s weakness – the widening gap between ultra-loose monetary policy in Japan and rising interest rates in other countries – leaving the currency vulnerable.
“There is value in slowing the yen’s decline. It gives companies and individuals more time to react in more time to adjust contracts, processes, and so forth,” James Sullivan, head of Asia Pacific equity research at JPMorgan Chase & Co., said on Bloomberg TV. Fundamentals will ultimately determine the value of the yen and fundamentals are important in higher spreads.”
Meanwhile, the overseas yuan weakened in the face of efforts to slow its decline, as the People’s Bank of China set a stronger-than-expected daily reference rate for the 22nd day.
Higher interest rates in the UK, Switzerland and Norway on Thursday, combined with increases across Asia, dampened market sentiment.
The Fed has given the clearest signal yet that it is ready to take on a recession as the necessary trade-off to regain control of inflation, with officials expecting a further 1.25 percentage point tightening before the end of the year.
Elsewhere in the markets, gold rallied towards a two-year low.
The energy market is facing extreme volatility in the last quarter of the year, Amrita Sen, co-founder and head of research at Energy Aspects Limited, said on Bloomberg Television. “There are a lot of different and contradictory factors driving prices right now,” she said, citing demand concerns from recession fears and supply constraints related to Iran and Russia, as well as a lack of spare capacity from OPEC.
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Here are some of the major moves in the markets:
- The Stoxx Europe 600 was down 0.2% as of 8:30 am London time
- S&P 500 futures fell 0.4%
- Nasdaq 100 futures fell 0.4%
- Futures on the Dow Jones Industrial Average were down 0.3%.
- MSCI Asia Pacific Index is down 0.5%.
- The MSCI Emerging Markets Index is down 1%.
- Bloomberg spot dollar index rose 0.3%.
- The euro fell 0.5% to $0.9785
- The Japanese yen rose 0.1% to 142.20 against the dollar
- The offshore yuan fell 0.4 percent to 7.1107 per dollar
- The British pound fell 0.6 percent to $1.1188
- The yield on the 10-year Treasury fell three basis points to 3.69%.
- Germany’s 10-year yield fell three basis points to 1.93%.
- The yield on British 10-year bonds fell three basis points to 3.47%.
- Brent crude fell 1% to $89.52 a barrel
- And spot gold fell 0.1 percent to $ 1669.22 an ounce
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