(Bloomberg) — European stocks advanced along with Asian equities and the dollar traded lower as fears of broader contagion from the banking turmoil eased.
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The Stoxx Europe 600 Index climbed 0.5% and a gauge of Asian shares advanced 0.7%. Benchmark indexes in France, Spain and Italy posted the biggest gains in Europe, while markets climbed in Hong Kong, Japan and South Korea as well. Futures for US stocks showed small gains.
Traders have been cautiously inching toward a risk-on posture as jitters in the banking sector subside. Financial firms were among the best performers in Asia on Tuesday after the sector led the way on Wall Street on Monday. Energy and basic-resources stocks also led the rally in Europe in a sign of optimism that the global economy will hold up.
The two-year Treasury yield slipped back below the 4% level after surging 23 basis points Monday. Sentiment from the US session flowed across to trading in Australia, New Zealand and Europe, where rates on government debt edged higher.
A gauge of dollar strength fell for a second day. The yen strengthened after Japan’s cabinet approved the use of some funds from the fiscal 2022 budget for measures to cushion the impact of inflation.
Meanwhile, swaps traders priced in about a 50% probability that the Federal Reserve will lift rates by a quarter point at its next gathering. They continue to expect sharp easing thereafter, with pricing suggesting the policy rate will slide to around 4.2% in December, down from around 4.9% in May.
Not all agree.
“We see major central banks moving away from a ‘whatever it takes’ approach, stopping their hikes and entering a more nuanced phase that’s less about a relentless fight against inflation but still one where they can’t cut rates,” strategists at BlackRock Investment Institute, including Wei Li and Alex Brazier, wrote in a note.
Some investors in the market remain on the lookout for signals of a recession later this year as the Fed and other central banks could be forced to implement higher-for-longer rate hikes to tame inflation.
JPMorgan’s chief strategist Marko Kolanovic said the first quarter “will likely mark the high point for equities this year,” recommending investors stay defensive in a research note.
“We view the most vulnerable areas as unprofitable companies that depend on steady flow of equity capital to fund operations and tight carry trades implemented over the last 10 to 20 years,” Kolanovic wrote.
Elsewhere in markets, Asian shares related to digital currencies fell in the wake of Bitcoin’s drop. The token fell 2.7% Monday after the US Commodity Futures Trading Commission sued Binance Holdings Ltd. for allegedly breaking trading and derivatives rules. Bitcoin was little changed Tuesday.
Oil steadied after posting the biggest daily rally since October when it rose by around 5% on Monday. Gold fluctuated.
Key events this week:
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US wholesale inventories, US Conf. Board consumer confidence, Tuesday
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EIA Crude Oil Inventory Report, Wednesday
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Eurozone economic confidence, consumer confidence, Thursday
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US GDP, initial jobless claims, Thursday
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Boston Fed President Susan Collins and Richmond Fed President Thomas Barkin speaks at event. Treasury Secretary Janet Yellen also speaks, Thursday
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China PMI, Friday
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Eurozone CPI, unemployment, Friday
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US consumer income, PCE deflator, University of Michigan consumer sentiment, Friday
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ECB President Christine Lagarde speaks, Friday
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New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 rose 0.7% as of 8:09 a.m. London time
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S&P 500 futures rose 0.3%
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Nasdaq 100 futures rose 0.3%
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Futures on the Dow Jones Industrial Average rose 0.4%
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The MSCI Asia Pacific Index rose 0.7%
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The MSCI Emerging Markets Index rose 0.5%
Currencies
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro rose 0.2% to $1.0815
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The Japanese yen rose 0.5% to 130.95 per dollar
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The offshore yuan was little changed at 6.8824 per dollar
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The British pound rose 0.3% to $1.2326
Cryptocurrencies
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Bitcoin was little changed at $27,068.93
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Ether rose 1.3% to $1,730.5
Bonds
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The yield on 10-year Treasuries was little changed at 3.53%
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Germany’s 10-year yield advanced six basis points to 2.28%
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Britain’s 10-year yield advanced seven basis points to 3.43%
Commodities
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Brent crude fell 0.2% to $77.96 a barrel
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Spot gold fell 0.1% to $1,954.51 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jason Scott.
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