S&P 500 futures steady after selloff rocked Globe: Markets Wrap

(Bloomberg) — Wall Street's selloff showed signs of abating even as investors grappled with the threat of longer-term higher interest rates and an Israeli backlash.

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U.S. stock futures rose, signaling a recovery after the S&P 500 fell more than 1% in the last two sessions. Two-year Treasury bonds neared 5%. The dollar rose for a fifth day, its longest rise since January.

Economic data continues to underscore U.S. economic strength as conflict in the Middle East raises the risk of higher energy prices and higher inflation, dashing hopes of early interest rate cuts from the Federal Reserve. As earnings season gets underway, there is growing concern that the leading mega-caps will struggle to justify their lofty valuations.

“Markets are looking for an excuse to take a breather, and the combination of rising geopolitical risk, inflation fears and Fed fears provides a good reason to do so,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management.

Traders are no longer fully pricing in a Fed rate cut before November, while strategists at UBS Group AG warned that there may be no reversal at all and that U.S. policymakers will instead embark on a rate hike cycle. 10-year Treasury yields have risen more than 10 basis points since the start of the week to 4.65%.

As stocks and bonds came under pressure, the dollar rose as investors poured into haven assets. Senior Israeli military officials have vowed to respond to Iran's missile attack despite diplomatic calls for restraint.

Recent data “has given the Fed pause and the market has adjusted prices quite significantly,” said Daniel Loughney, head of fixed income at Mediolanum International Funds. “We have a strong dynamic blending US growth and inflation dynamics with broader inflationary pressures related to commodities and supply chains.”

Meanwhile, stocks outside the U.S. traded lower, with stocks in Europe down 1.2% and Asian stocks down 2%.

This year's record rally has left markets particularly vulnerable to a decline, according to top Wall Street strategists.

A survey by Bank of America Corp. revealed that investor allocation to stocks is the highest in over two years. Citigroup strategists counted $52 billion worth of long positions in the S&P 500, 88% of which were losing.

The story goes on

“If the market turns negative, the move could be faster and larger due to the large long positions that are already in the red,” Citigroup strategist Chris Montagu wrote in a note.

Read more: Wall Street strategists say there is a risk of forced selling if stocks fall

Among individual movers, Tesla Inc. fell as much as 2.6% in premarket trading as two of the electric car maker's top executives left in the automaker's biggest round of job cuts yet. Morgan Stanley rose 3% premarket after the company reported first-quarter net revenue from wealth management that beat the average analyst estimate. Income from equity trading was also above consensus.

Important events this week:

• Construction starts in the USA, industrial production, Tuesday

• Fed Vice Chairman Philip Jefferson speaks on Tuesday

• BOE Governor Andrew Bailey speaks on Tuesday

• The IMF releases its latest global economic outlook on Tuesday

• Eurozone CPI, Wednesday

• The Fed releases its Beige Book on Wednesday

• Cleveland Fed President Loretta Mester speaks Wednesday

• Fed Governor Michelle Bowman speaks on Wednesday

• BOE Governor Andrew Bailey speaks on Wednesday

• Taiwan Semiconductor results, Thursday

• US conference. Leading Board Index, Existing Home Sales, Initial Jobless Claims, Thursday

• Fed Governor Michelle Bowman speaks Thursday

• New York Fed President John Williams speaks on Thursday

• Atlanta Fed President Raphael Bostic speaks Thursday

• BOE Deputy Governor Dave Ramsden and Governing Council member Joachim Nagel speak on Friday

• Chicago Fed President Austan Goolsbee speaks Friday

Some of the key moves in the markets:

Shares

• S&P 500 futures rose 0.1% at 8:22 a.m. New York time

• Nasdaq 100 futures were little changed

• Futures on the Dow Jones Industrial Average rose 0.5%

• The Stoxx Europe 600 fell 1.2%

• The MSCI World Index fell 0.5%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%

• The euro rose 0.2% to $1.0642

• The British pound was little changed at $1.2454

• The Japanese yen fell 0.2% to 154.64 per dollar

Cryptocurrencies

• Bitcoin fell 0.3% to $62,976.73

• Ether fell 0.3% to $3,073.92

Tie up

• The 10-year Treasury yield rose five basis points to 4.65%

• The 10-year German government bond yield rose two basis points to 2.46%

• The UK 10-year government bond yield rose five basis points to 4.29%

raw materials

• West Texas Intermediate crude fell 0.6% to $84.93 a barrel

• Spot gold fell 0.5% to $2,370.55 an ounce

This story was produced with support from Bloomberg Automation.

– With support from Allegra Catelli, Sagarika Jaisinghani, Farah Elbahrawy, Guy Johnson, Sujata Rao and Chiranjivi Chakraborty.

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