(Bloomberg) -- Treasury yields extended a slump and US equity-index futures fluctuated as bets the world economy is set for a sharper slowdown outweighed concerns over elevated inflation and monetary tightening.
The two-year US rate, which is the most sensitive to monetary policy, slid for a fifth day, its longest streak since July 2022. Global bonds rallied after a private US jobs report and purchasing managers' indexes provided further evidence the world's largest economy is faltering. Contracts on the Nasdaq 100 index fell 0.2%, while those on the S&P 500 edged higher.
Signs of slower activity have added to worries over the financial system sparked by bank failures. Economists now assign a 65% probability of a US recession and money markets see only a 44% chance the Federal Reserve will raise interest rates by 25 basis points in May. That marks a contrast to the start of the week when they had seen a 70% prospect of the hike. Now they also expect the central bank to start cutting rates as early as July.
"The rates market is increasingly accepting that the economy is slowing and recession would be very hard to avoid," said Marija Veitmane, a strategist at State Street Global Markets. "The equity market is yet to accept that reality. It seems to respond positively to weaker data — bad news is a good news world. Equity markets need to accept that economic slowdown not only means that interest rates would be lower, but earnings expectations would have to come down a lot."
The moves in global markets were muted before the Easter holiday and many assets traded slightly risk-off. Treasuries rose, with the two-year yield falling 7 basis points to 3.71%, and government bonds climbed in Australia, New Zealand, the UK and Germany.
Investors are now awaiting Friday's non-farm payrolls data to gauge the depth of the labor-market slowdown and to validate the bets for easing later in the year.
"NFP tomorrow will be the real test of whether the economy is starting to feel the impact of the Fed tightening," said Brendan McKenna, a New-York based economist and strategist at Wells Fargo Securities.
"We think the Fed hikes another 25 basis points in May as banking sector issues are contained and inflation is still uncomfortably high," he said. "In the second half of this year we think the US economy falls into recession and the Fed pivots on policy. Easing should bring yields across the curve lower, and the curve eventually un-inverts around the middle of 2024."
In commodities, oil headed for a third weekly gain as a surprise supply cut by OPEC+ and a drop in US inventories tightened the market outlook. West Texas Intermediate futures reversed losses to trade near $81 a barrel on Thursday.
European stocks climbed, with the benchmark Stoxx 600 ending a three-day slide, as traders assessed trends in corporate earnings. Shell Plc advanced as preliminary figures showed the company maintained the performance at its gas-trading business despite a price slump. TUI AG jumped 12% after the tourism-services company said it expects summer travel bookings close to pre-Covid levels.
In premarket New York trading, FedEx Corp. climbed 1.1% after Raymond James raised the stock to outperform. FedEx said on Wednesday it seeks to cut $4 billion in costs by combining its two main delivery networks. The Mosaic Co. dropped 2.3% after JPMorgan Chase & Co. downgraded the stock to neutral.
Key events this week:
- US initial jobless claims, Thursday
- St. Louis Fed President James Bullard speaks, Thursday
- US unemployment, nonfarm payrolls, Friday
- Good Friday. US stock markets closed, bond markets close for part of the day
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 8:03 a.m. New York time
- Nasdaq 100 futures fell 0.2%
- Futures on the Dow Jones Industrial Average rose 0.1%
- The Stoxx Europe 600 rose 0.5%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.0916
- The British pound rose 0.1% to $1.2478
- The Japanese yen fell 0.1% to 131.49 per dollar
Cryptocurrencies
- Bitcoin fell 0.7% to $27,950.49
- Ether fell 2% to $1,867.46
Bonds
- The yield on 10-year Treasuries declined three basis points to 3.28%
- Germany's 10-year yield declined four basis points to 2.15%
- Britain's 10-year yield declined two basis points to 3.41%
Commodities
- West Texas Intermediate crude rose 0.4% to $80.91 a barrel
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
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