Stocks in Europe and US equity futures stabilized Friday as traders caught their breath after a rout triggered by fears of an economic downturn. Treasury yields rose and the dollar rebounded from two days of losses.

The Stoxx Europe 600 index was little changed after hitting its lowest level in more than a year. S&P 500 and European contracts rose about 0.5%, signaling steadier sentiment compared with Thursday’s plunge in US shares to the lowest since late 2020. Hong Kong and China bucked a 1% drop in an Asian stock gauge.

Markets are rounding off a week buffeted by interest-rate increases, including the Federal Reserve’s biggest move since 1994, a shock Swiss National Bank hike that energized the franc and the latest boost in UK borrowing costs. the rate hikes are draining liquidity, sparking losses in a range of assets. Global stocks face one of their worst weeks since pandemic-induced turmoil of 2020.

“Even the most ardent buy-the-dipper in the equity space is starting to realize inflation is a threat, with central bank banks prepared to hike the world into a slowdown and possible recession to get on top of it,” said Jeffrey Halley, a senior market analyst at Oanda. “A recession isn’t good news for pimped-up valuations either. The street is looking for anything but equities into the end of the week, and tasty government bond yields seem to be the preferred home.”

Japan retained super-easy monetary policy and yield curve control, defying pressure to track a global trend toward tighter settings. The yen sank and Japan’s 10-year bond yield retreated below the Bank of Japan’s cap of 0.25%, after earlier hitting 0.265%, the highest since 2016. Doubts about the sustainability of the central bank’s stance continue to linger.

Bitcoin managed to hold above the closely watched $20,000 level. Oil wavered as traders weighed the prospect of slower economic growth against tight supplies. Gold was on the back foot and heading for a weekly drop.

Friday also brings the quarterly event known as triple witching. The $3.5 trillion options expiry may lead to short covering, which could bring temporary relief for the stock market.

Source:
courtesy of BLOOMBERG

by Sunil Jagtiani and Robert Brand

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