(Bloomberg) — European stocks fell and U.S. stock futures dropped on Friday as bad news on corporate earnings dampened euphoria over the trajectory of interest rates.
Most read articles on Bloomberg
Europe's Stoxx 600 stock index slumped 8.4% after Mercedes-Benz Group Inc. cut its earnings outlook due to weak sales in China. U.S. futures fell just hours after the S&P 500 hit its 39th record high for 2024. Economic indicator FedEx Corp. plunged 13% in premarket trading after it missed profit expectations and warned of a business slowdown.
The Federal Reserve's bold 50-point interest rate cut this week has raised confidence the central bank can engineer a soft landing, but warnings from FedEx and others highlight lingering risks to the economy. Fed policymakers expect another half-percentage-point cut this year.
“There's a lot of optimism in the market right now, but clearly some concerns remain beneath the surface,” said Jim Reed, strategist at Deutsche Bank. “In particular, futures continue to price in a more aggressive pace of cuts than Wednesday's Fed dot plot suggested, leaving investors betting on faster rate cuts if downside risks materialize.”
Traders are also bracing for a quarterly event known as the “triple witching,” when derivatives contracts tied to stocks, index options and futures expire, which could amplify market moves.Derivatives analytics firm Asym500 estimates that about $5.1 trillion in derivatives contracts are set to expire on Friday.
Options expirations coincide with the rebalancing of benchmark indexes, an event known to cause sudden price movements as contracts expire and traders roll over existing positions or initiate new ones.
Treasury yields were little changed on Friday, but the dollar index rose.
The Bank of Japan left policy on hold and drew attention as the yen weakened after Governor Ueda Kazuo's comments were less hawkish than some traders had expected, saying there was little urgency to raise interest rates and that risks of rising inflation were easing.
Bank of America's Michael Hartnett says stock market optimism following the Fed's moves is increasing the risk of a bubble, making bonds and gold attractive as hedges against a recession or a resurgence of inflation.
Stocks are now pricing in further easing from the Fed and roughly 18% earnings growth for the S&P 500 through the end of 2025, according to the strategists. “The risk picture couldn't be better, forcing investors to chase the rally,” Hartnett wrote in a note.
He also said non-U.S. stocks and commodities are good bets on a possible soft landing for the economy, with the latter acting as an inflation hedge. International stocks are cheap and have begun to outperform U.S. stocks, Hartnett said.
In commodities on Friday, gold hit a new record as the Fed's aggressive monetary easing measures rippled through the market, while crude oil was on track for its biggest weekly gain since February.
Major events this week:
-
Eurozone consumer confidence on Friday
-
Canadian retail sales Friday
Some of the key market developments:
stock
-
The Stoxx Europe 600 index was down 0.7% as of 10:16 a.m. London time.
-
S&P 500 futures fell 0.2%
-
Nasdaq 100 futures fell 0.3%
-
Dow Jones Industrial Average futures were little changed
-
MSCI Asia Pacific Index rose 0.6%
-
MSCI Emerging Markets Index rose 0.6%
currency
-
The Bloomberg Dollar Spot Index rose 0.2%.
-
The euro was little changed at $1.1163
-
The Japanese yen fell 0.8% to 143.78 yen to the dollar.
-
The offshore yuan rose 0.3% to 7.0504 yuan per dollar.
-
The British pound was little changed at 1.3297 to the dollar
Cryptocurrency
-
Bitcoin rose 0.6% to $63,429.33.
-
Ether rose 3.5% to $2,552.89.
Bonds
-
The yield on the 10-year Treasury note was little changed at 3.71%.
-
German 10-year bund yields fell 2 basis points to 2.18%.
-
UK 10-year government bond yields fell 3 basis points to 3.87%.
merchandise
-
Brent crude fell 0.3% to $74.69 a barrel
-
Spot gold rose 0.9% to $2,609.50 an ounce.
This story was produced with assistance from Bloomberg Automation.
–With assistance from Winnie Hsu, Richard Henderson, Sagarika Jaisinghani, and Divya Patil.
Most read articles on Bloomberg Businessweek
©2024 Bloomberg LP
