On Friday, investors upped their bet that central banks would rule inflation, sending stocks and bonds on their way to their first weekly gains in a month, but concerns over growth hurt commodities.
Global stocks rose early on Friday, with benchmark Indian exchanges gaining quite strongly.
Indeed, in line with bullish signs in international markets, Indian equity indices opened the day in the green, adding to their gains for the second consecutive day; Following a rally on Wall Street overnight, Asian stocks soared today.
This helped the rupiah break out of its record low and gain strongly on Friday, after closing at lows in the previous two sessions.
Amid signs China’s tech crackdown is easing, short sellers bailed out Alibaba, which rose 5%, helping MSCI’s broadest non-Japan Asia-Pacific equity index rise 1 % Friday.
S&P 500 futures were flat after the index rose about 1% overnight, and the Japanese Nikkei gained 0.8% for a weekly gain of 1.6%. Against a basket of foreign currencies, the US dollar was trading slightly below a two-decade high.
“While market concerns about a sharp downturn are driving recent commodity price declines, the commodity price slump makes it look like it could be just what the doctor ordered for the world.” global economy,” said Brian Daingerfield, market strategist at NatWest.
“A lot of our hard landing fears are tied to commodity price concerns.”
With a wide range of industrial and construction uses, copper is a leading indicator of economic activity. Copper fell 3% in Shanghai and was down more than 7% for the week, marking its biggest weekly decline since the pandemic-induced meltdown in financial markets in March 2020.
Benchmark grain prices fell, with Chicago wheat falling nearly 9% for the week and to its lowest level since March at $9.42 a bushel. Oil prices fell overnight and Brent futures are down 2% for the week at $110.62 a barrel.
As food and energy prices were the main contributors to inflation, the price declines provided relief to the stock market. The MSCI global equity index rose 2% for the week after recent steep losses.
This week, however, has been plagued with soft data.
Japan, Britain, the euro zone and the United States all experienced a slowdown in industrial activity in June, and American businesses reported the first outright drop in new orders in two years due to the deterioration of confidence in the country.
Bond prices rallied on weak economic data.
German two-year rates fell the most since 2008, 22 basis points, as bonds jumped sharply on expectations that bets on rapid rate hikes should be restricted.
The standard 10-year US Treasury yield fell 7 basis points overnight and remained constant at 3.0944%.
Despite continued investor caution, the US dollar has not strayed too far from recent highs. It last traded at $1.0529 per euro, which bought 134.79 yen.
“There are clear economic and market trends. Leading indicators such as the PMI and retail sales in Europe and the United States point to an economic slowdown. Most central banks around the world are raising rates in this slowdown,” VK Vijayakumar, chief investment strategist at Geojit Financial Services, told PTI.
“As a result, the downturn will continue and could deepen the US economy into recession. Since the market knows this, stocks are in oversold territory, triggering short-term bullish moves,” he said.
The “whipsaw movement” in Nifty yesterday reflects this uncertainty, confusion and lack of direction, Mr Vijayakumar added.
On the global front, markets are now leaning on more cautious policy action from the Fed after another scheduled rate hike of 75 basis points in July sparked bumpy dollar trading this week.
Fed Governor Michelle Bowman said on Thursday she favored increases of 50 basis points for “the next” meetings after the July one.
In the meantime, Fed Chairman Jerome Powell stressed the central bank’s “unconditional” commitment to containing inflation, especially in the face of economic threats, in his second day of testimony in Congress.
Reconstruction fears stifled Treasury yields, weakening crucial support for the currency. Overnight, the yield on the 10-year note fell to a two-week low.
As investors weigh the Federal Reserve’s policy direction and whether rapid rate hikes will lead to a recession, the US dollar fell against its major counterparts on Friday, setting the stage for its first weekly decline this month.