Global stocks rebound despite economic malaise; dollar earnings

  • MSCI’s ACWI posts longest losing streak since 1990
  • Dollar gains as investors turn risk averse
  • US Treasury yields fall as fears of a slowdown increase
  • Oil gains as supply risks outweigh economic worries
  • Chart: Overall Asset Performance

NEW YORK, May 20 (Reuters) – Global stock markets rebounded after the S&P 500 pared losses that briefly drove it into bearish territory, and the dollar gained on Friday as investors unease over the tightening of the Federal Reserve’s policy to curb inflation raised fears of a recession.

Stocks rebounded earlier in Europe and Asia after China slashed a key lending benchmark to support its weakened economy, initially helping drive gains on Wall Street.

China cut its prime rate for five-year loans, which influences mortgage prices, by 15 basis points in a steeper-than-expected cut as authorities seek to cushion the impact of an economic slowdown. Read more

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While a late-day rally prevented the S&P 500 from confirming a bear market, gloom on Wall Street sent the benchmark index tumbling for the seventh straight week, an event that has only happened five times. since 1928, according to the S&P Dow Jones indices.

How long the stock decline will last will depend on when inflation breaks, said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Va.

“What really threw off investors this week, myself included, is when you have the types of companies that generally do well in economic weakness, do terribly,” Tuz said, referring to Walmart’s poor results. Inc (WMT.N) and Target Corp. (TGT.N).

The S&P 500 (.SPX) closed 0.01% higher after falling 2.27% at one point at or below the level that would confirm a bear market – a 20% decline from its all-time high. closing on January 3.

The Dow Jones Industrial Average (.DJI) rose 0.03% and the Nasdaq Composite (.IXIC), already in bearish territory, fell 0.3%.

Equity valuations must fall and the expected return on investments, the discount rate, must rise, said Stephen Auth, director of equity investments at Federated Hermes.

“The market is starting to digest the idea that this could be a new world where the discount rate for risky assets is no longer zero,” Auth said.

“You see all these different areas of the market being pounded at the same time and that has been very unsettling for investors,” he added.

The MSCI gauge of stocks in 47 countries (.MIWD00000PUS) closed 0.37% higher but still fell for the seventh week in a row, its longest losing streak since the index was launched in 1990.

Earlier in Europe, the pan-regional STOXX 600 index (.STOXX) rose 0.73%.

US Treasury yields fell for a third straight session on worries about the growth outlook. The yield on the benchmark 10-year bond fell 6.5 basis points to 2.790%.

Fed funds futures were firmer, suggesting that the US rates market has pulled back slightly from some of its more extreme rate hike estimates. The rates market priced in a fed funds rate of 2.783% at the end of next year, down from a current level of 0.83%. It was as high as 2.9% two weeks ago.

The day’s gains for the dollar were not enough to erase steep losses earlier in the week that took the greenback away from a five-year high against the common currency on fears that its months-long rally has been exaggerated.

The dollar has been buoyed in recent months by a flight to safety amid a rout in markets on fears of runaway inflation, a hawkish Fed and war in Ukraine.

The dollar index rose 0.146%, with the euro down 0.3% at $1.0554. The Japanese yen weakened 0.09% to 127.92 to the dollar.

Eurozone bond yields rose after two days of steep declines as risk sentiment improved following a rate cut in China.

Germany’s 10-year government bond yield rose 0.1 basis points to 0.9450%, below last week’s eight-year high of 1.189%.

Markets are anticipating a 38 basis point tightening from the European Central Bank by its July meeting. This suggests that a 25bps move is fully priced in and markets see about a 50/50 chance of an additional 25bps move. Read more

Oil prices stabilized, on track for little change for the week as a planned European Union ban on Russian oil balanced concerns that slowing economic growth will hurt demand.

U.S. crude futures rose $1.02 to $113.23 and Brent rose 51 cents to settle at $112.55 a barrel.

Gold edged higher, heading for its first week of gains in five weeks on lingering concerns over economic growth and the weaker dollar during the week.

US gold futures rose 0.1% to $1,842.10.

Bitcoin fell 3.36% to $29,272.33.

Global stocks plunge $13 trillion in value
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Reporting by Herbert Lash in New York Reporting by Samuel Indyk in London and Andrew Galbraith in Shanghai Editing by Kirsten Donovan and Matthew Lewis

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