(Bloomberg) — Investors fled to safety in bonds and stocks fluctuated as a pullback toward higher interest rates combined with weak eurozone activity data heightened concern that aggressive central bank policy would tip economies into recession.
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Global stocks headed for their biggest weekly decline in more than three months. European stocks fluctuated, with a record 36% drop in shares of Siemens Energy AG after a profit warning dragged on the broader market. Defensive sectors such as healthcare gained. US index futures fell.
Equity’s rally in the second quarter has been soured by the threat of a rate hike and concerns that the full economic impact of aggressive interest rate hikes is yet to be felt. Federal Reserve Chairman Jerome Powell has said that the US may need one or two rate hikes in 2023.
“The market has not yet digested the delayed impact of the Fed’s more hawkish policy,” said Emily Rowland, chief investment strategist at John Hancock Investment Management. “Based on what we’ve seen with respect to these really strong markets, we’ll look at de-risking.”
The rally in European bonds sent the five-year German Bund yield down as much as 16 basis points to 2.48%, putting it on track for its biggest drop since April. US Treasury yields fell sympathetically, with the benchmark 10-year note falling more than 5 basis points.
German economic activity lost much more momentum than expected in June, driven by a slowdown in services and persistent weakness in the country’s factories, according to business surveys conducted by S&P Global. Separate data for France showed that its economy likely contracted in the three months to June. The euro fell sharply after these numbers.
Read more: Eurozone activity nearly ground to a halt as recession fades
Concern over the economic outlook was reflected in the turnover of bonds and stock exits in the weekly flow data. Investors pulled out $5 billion from global equity funds in the week through Wednesday and added $5.4 billion to bonds.
US stocks face more downside than upside over the next two months as banks and real estate firms continue to experience bad recessionary sentiment, according to a note from Bank of America strategists citing EPFR Global data.
Read more: Bonds rise, the euro falls amid fears that the economy is beginning to decline
The Bank of England on Thursday unexpectedly raised its benchmark interest rate by half a percentage point, warning it may have to raise it again. The rise in retail sales in the UK in May points to a robust economy which the central bank fears could fuel inflation. The week also saw Norges Bank accelerate its increases and pledge more aggressive tightening, stepping up its response to stubborn inflation and currency weakness.
Main events this week:
Some of the major movements in the markets:
Stores
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S&P 500 futures were down 0.5% as of 6:20 a.m. New York time.
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The Nasdaq 100 fell 0.7%.
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Futures on the Dow Jones Industrial Average fell 0.3%.
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The Stoxx Europe 600 hasn’t changed a bit
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MSCI World Index fell 0.4%
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MSCI Asia Pacific Index fell 1.4%
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The MSCI Emerging Markets Index fell 0.9%.
currencies
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The Bloomberg Spot Dollar Index rose 0.5%.
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The euro fell 0.8 percent to $1.0865
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The British pound fell 0.2 percent to $1.2721
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The Japanese yen was little changed at 143.24 per dollar
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The external yuan fell 0.3 percent to 7.2192 per dollar
Digital currencies
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Bitcoin changed little at $30,128.63
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Ether fell 0.3% to $1,882.64
bonds
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The yield on the 10-year Treasury fell six basis points to 3.74%.
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Germany’s 10-year yield fell 12 basis points to 2.37%.
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The yield on the UK 10-year note fell by 10 basis points, to 4.26%.
goods
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West Texas Intermediate crude fell 1.1 percent to $68.76 a barrel
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Gold futures rose 0.2 percent to $1,927.80 an ounce
This story was produced with help from Bloomberg Automation.
– With assistance from Dennitsa Tsikova, Macarena Munoz, Greg Ritchie, and Isabelle Lee.
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