Stocks are set for their best week in a month as investor ride a so-called ‘relief rally’ while re-setting other market prices for a near-term recession.
U.S. equity futures moved higher again Friday, setting up Wall Street for its first weekly gain in a month, even as markets around the world continue to suggest that growth concerns have overtaken inflation worries heading into the second half of the year.
Federal Reserve Chairman Jerome Powell told Congressional lawmakers on Capitol Hill yesterday that he and his colleagues “can’t fail” in their effort to bring inflation back to the 2% level needed for price stability in the world’s biggest economy, a reiteration that points to more Fed rate hikes and slower economic growth.
“We really need to restore price stability,” Powell told the House Financial Services Committee. “Because without that we’re not going to be able to have a sustained period of maximum employment where the benefits are spread very widely. It’s something that we need to do, we must do.”
Commodity prices, which have been weakening for much of the past two weeks, extended declines in overnight trading, with Copper — closely-watched barometer of manufacturing demand — on pace for its worst week in more than two years and oil prices hovering near the lowest levels since early May.
Bond yields are rallying, as well, pulling benchmark 10-year Treasury bond yields dipped to 3.119% in overnight trading, putting the spread against 2-year notes at just 6 basis point. A so-called inversion of the yields of 2-year and 10-year notes is typically seen as a signal of near-term recession following weaker-than-expected PMI data from major economies around the world.
“Overall, the PMI releases have shifted focus some more on slowdown/recession from inflation, and more of that is likely to be seen in the coming weeks,” said Saxo Bank’s head of equity strategy Peter Garnry. “
Investors are also taking money of out stock markets at the fastest pace in more than two months, according to data from Bank of America’s weekly “Flow Show” report, which indicates equity market withdraws of around 16.8 billion.
Still, global equity benchmarks are moving higher, buoyed by defensive and growth stocks, the former getting support from investors worried about recession risk, the latter receiving a boost from lower Treasury yields.
In Europe, the region-wide Stoxx 600 was marked 1.6% higher in mid-day Frankfurt trading, on pace for weekly gain of around 1%, while Asia’s MSCI ex-Japan benchmark gained 1.4% to put its weekly advance at around 1.34%.
On Wall Street, futures tied to the Dow Jones Industrial Average are indicating a 240 point opening bell gain while those linked the S&P 500, which is down 20.36% for the year, are priced for a 32 point gain. Futures linked to the tech-focused Nasdaq are looking at 120 point opening bell gain.
Bank stocks were on the move, rising modestly higher across the board, after the Federal Reserve said late Thursday that all of the nation’s largest banks could weather a severe shock to the U.S. economy in an assessment that will allow them to boost shareholder returns over the coming year.
Wells Fargo (WFC) – Get Wells Fargo & Company Report shares were marked 1.2% higher in pre-market trading Friday to indicate an opening bell price of $38.35 each. JPMorgan (JPM) – Get JP Morgan Chase & Co. Report was marked 0.4% higher at $113.92 while Bank of America gained 0.4% to $32.21 each.
FedEx (FDX) – Get FedEx Corporation Report shares, meanwhile, rose 2.9% after the world’s biggest package delivery group posted better-than-expected fourth quarter earnings alongside a solid near-term profit forecast.