Bruised stocks find support as growth fears dent commodities

Global stocks and bonds headed for their first weekly gain in a month on Friday, with growth concerns tempered by hopes that sliding commodity prices can help brake runaway inflation.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 1.4% on Friday, helped by short sellers bailing out of Alibaba 9988.HK – which rose nearly 7% – amid hints that China’s technology crackdown is abating.

Japan’s Nikkei .N225 rose 1.2% for a 2% weekly gain, while S&P 500 futures ESc1 extended overnight gains by 0.76%. EuroSTOXX 50 futures STXEc1 rose 1% and FTSE futures FFIc1 rose 0.6%.

The week has been marked by steep declines for commodities on worries that the world economy is looking shaky and that interest rate hikes will hurt growth – which in turn is also prompting traders to pare back some bets on the size of rate hikes.

Copper, a bellwether for economic output with its wide range of industrial and construction uses, is heading for its steepest weekly drop since March 2020. It fell in Shanghai SCFc1 on Friday and is down about 8% on the week.

Oil is also headed for a weekly loss. Brent crude futures LCOc1 are down 2.5% on the week to $110.35 a barrel, while benchmark grain prices sank with Chicago wheat Wv1 off more than 8% for the week.

The falls have made for some relief in equities since energy and food have been the drivers of inflation. After heavy recent losses, MSCI’s World equities index .MIWD00000PUS is up 2.3% this week, setting it up for the first weekly gain since May.

“While market worries about an abrupt slowdown are the culprit behind recent moves lower in raw materials prices, lower commodity prices do feel like they could be just what the doctor ordered for the global economy,” said NatWest markets strategist Brian Daingerfield.

“So much of our hard landing fears relate to concerns that link back to commodity prices.”

Soft data through this week has been to blame.

Gauges of factory activity in Japan, Britain, the euro zone and United States all softened in June, with U.S. producers reporting the first outright drop in new orders in two years in the face of slumping confidence.

Bonds rallied hard on hopes the bets on aggressive rate hikes would have to be curtailed, with German two-year yields DE2YT=RR down 26 basis points on Thursday in their biggest drop since 2008.

The benchmark 10-year Treasury yield US10YT=RR fell 7 bps on Thursday and was steady at 3.0908%.

The U.S. dollar has slipped from recent highs, but not too far as investors remain cautious. It was last fairly steady at $1.05395 per euro EUR=EBS and bought 134.73 yen JPY=EBS.

The battered yen has steadied this week and drew a little support on Friday from Japanese inflation topping the Bank of Japan’s 2% target for a second straight month, putting more pressure on its ultra-easy policy stance.

European Central Bank and Federal Reserve speakers will be watched closely later in the day, as will British retail sales data and German business confidence. Beyond that, the main worry is what it all means for company performance.

“Second quarter earnings reports will send shockwaves to the market as the earnings outlook hasn’t deteriorated materially so far, and that will further build concerns of a recession,” said Charu Chanana, market strategist at brokerage Saxo in Singapore.
Source: Reuters (Editing by Jacqueline Wong)