Stocks, Futures Up; Inflation Risk Saps Treasuries: Markets Wrap

Stocks rose along with U.S. equity futures Friday, bringing some relief for shares from the inflation fears still roiling Treasuries.

MSCI Inc.’s Asia-Pacific gauge posted its biggest rise this week, helped by Japan’s bourse and China’s technology stocks. The view that the worst of Beijing’s regulatory blitz has passed salved sentiment. U.S. and European contracts climbed after the S&P 500 snapped a two-day fall.

Five-year notes led a continued selloff in Treasuries after a trading holiday. The spread between 5-year and 30-year yields shrank, at one point to the narrowest since March 2020. A rout hit bonds Wednesday after the fastest U.S. inflation in three decades stoked bets on faster monetary tightening.

The dollar held a rally in the wake of the inflation print and caution triggered by a U.S. warning that Russia may be weighing a potential invasion of Ukraine. Oil and gold slipped, while Bitcoin was steady.Global stocks are set for their first weekly drop since early October, hurt by signs that price pressures are broadening out beyond pandemic-related disruptions. But swings in equity indexes pale in comparison to bond market ructions, raising the question of whether stock investors are too sanguine. “Inflation could remain elevated in the coming months, and each inflation release that comes in above expectations has the potential to cause volatility in rate and equity markets, but we still don’t expect inflation to derail the equity rally,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note.

Elsewhere, President Xi Jinping delivered the first doctrine on Communist Party history by a Chinese leader in 40 years, giving him a mandate to potentially rule for life. Xi’s “common prosperity” drive to curb inequalities has spawned overhauls that whipsawed Chinese sectors ranging from technology to property.

But there are tentative hopes the strictures may ease, with Goldman Sachs Group Inc. predicting a brighter outlook for Chinese equities. It said onshore and offshore stocks will return 16% and 13% in the next 12 months respectively.

Source: Bloomberg