Stocks, futures fall as global growth fears spread: markets wrap

Stocks and US equity futures extended declines at the end of a week that underscored expectations for tighter monetary policy and a slowing global economy.

Energy shares led a drop in Europe on Friday as oil headed for a fourth weekly loss. Banks fell as Credit Suisse Group AG plunged to a record, while denying a report that its considering exiting the US market. The MSCI Asia Pacific Index was set for a sixth weekly decline, the longest streak since May, after the S&P 500 Index closed at the lowest level since June.

Strategists are giving up on a year-end rally for European stocks as Goldman Sachs Group Inc. slashed its year-end target for the S&P to 3 600 from 4 300, arguing that a dramatic shift in the outlook for higher interest rates will weigh on valuations.

Investors are flocking to cash and shunning almost every other asset class as they turn the most pessimistic since the global financial crisis, according to Bank of America Corp. strategists.

The 10-year Treasury yield held near 3.7%, after surging to its highest in a decade. Bond yields in Europe dipped, while those in Asia rose, led by a jump of more than 20 basis points in Australia as trading resumed there after a holiday.

A dollar gauge extended gains to yet another record. The yen was steady as traders brace for more action after Japan intervened to prop up the ailing yen for the first time since 1998.

Japan’s intervention hasn’t addressed the underlying cause of yen weakness — the yawning gap between Japan’s ultra-loose monetary policy and rising rates in other countries — leaving the currency vulnerable.

“There is value in slowing the decline of yen. It gives companies and people more time to react in more time to adjust contracts, processes, et cetera,” James Sullivan, head of Asia Pacific equity research at JPMorgan Chase & Co., said on Bloomberg Television. “Ultimately fundamentals will determine the value of the yen and the fundamentals are significant in rising rate differentials.”

Meanwhile, the offshore yuan weakened in the face of efforts to slow its depreciation, with the People’s Bank of China setting the daily reference rate stronger than expected for a 22nd day.

Rate hikes in the UK, Switzerland and Norway on Thursday, along with increases across Asia, damped market sentiment.

The Federal Reserve has given its clearest signal yet that it’s willing to tolerate a recession as the necessary trade-off for regaining control of inflation, with officials forecasting a further 1.25 percentage points of tightening before year-end.

Elsewhere in markets, gold edged toward a two-year low.

The energy market faces a very volatile last quarter of the year, Amrita Sen, co-founder and research director of Energy Aspects Ltd. said on Bloomberg Television. “It’s just too many different and contradictory factors driving prices right now,” she said, citing demand concerns from recessionary fears and supply constraints relating to Iran and Russia, as well as a lack of spare capacity from OPEC.

Here are some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 fell 0.2% as of 8:30 a.m. London time
  • Futures on the S&P 500 fell 0.4%
  • Futures on the Nasdaq 100 fell 0.4%
  • Futures on the Dow Jones Industrial Average fell 0.3%
  • The MSCI Asia Pacific Index fell 0.5%
  • The MSCI Emerging Markets Index fell 1%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.3%
  • The euro fell 0.5% to $0.9785
  • The Japanese yen rose 0.1% to 142.20 per dollar
  • The offshore yuan fell 0.4% to 7.1107 per dollar
  • The British pound fell 0.6% to $1.1188

Bonds

  • The yield on 10-year Treasuries declined three basis points to 3.69%
  • Germany’s 10-year yield declined three basis points to 1.93%
  • Britain’s 10-year yield declined three basis points to 3.47%

Commodities

  • Brent crude fell 1% to $89.52 a barrel
  • Spot gold fell 0.1% to $1 669.22 an ounce

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