US equity futures rallied Friday on positive earnings from Amazon.com Inc. and Apple Inc. and expectations of shallower Federal Reserve monetary tightening, a prospect that’s also supporting Treasuries.

Nasdaq 100 contracts added more than 1% after the US stock market hit a seven-week high Thursday. Amazon jumped over 13% in extended trading, while Apple also advanced, after their revenues beat estimates.

The tone was more somber in Asia, hampered by a tumble in Chinese tech shares that dragged Hong Kong toward a correction of more than 10% from a June high. A downbeat economic growth assessment from China’s top leaders and a lack of new stimulus policies contributed to the dour regional mood.

A jump in Treasuries has left the 10-year yield near the lowest since April. Data showing a second straight quarterly US economic contraction supported arguments that inflation will cool and that the Fed will become less aggressive.

The yen strengthened 1% as the dollar retreated. Oil hovered around $97 a barrel. Gold edged higher. Bitcoin breached the $24,000 level, on course for its best month since 2021.

Global shares are set for a second weekly advance, paring this year’s rout to about 16%. The risk is that the recent bout of optimism eventually gets a reality check if inflation stays stubbornly elevated, leaving interest rates higher than investors would like amid an economic downturn.

“At some point, the Fed will pivot policy and that should be better for risk markets, but in the meantime, they’re so bent on quelling inflation that we prefer not to buy the dip here,” Thomas Taw, head of APAC iShares Investment Strategy at BlackRock Inc., said on Bloomberg Radio.

Second-quarter US gross domestic product fell an annualized 0.9% after a 1.6% drop in the first three months of the year. Back-to-back quarters of decline define a recession in most parts of the world, but in the US it’s not official until economists at the National Bureau of Economic Research deem it so.

Swaps tied to Fed meeting dates anticipate a peak in the fed funds rate of about 3.25% around year-end, less than a percentage point above its current level, followed by reductions next year to shore up growth. Such pricing is a major bone of contention for market participants.

“Market pricing is overdone and the terminal rate should move closer to 3.5%-3.75%” as inflation remains too high amid strong labor and wage trends, wrote Priya Misra and Gennadiy Goldberg, strategists at TD Securities.

Elsewhere, a call between US President Joe Biden and China’s Xi Jinping underlined bilateral tension even as the leaders sought an in-person meeting.

Source:
courtesy of BLOOMBERG

by Sunil Jagtiani and Tassia Sipahutar

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