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Europe, US Futures Fall as Brutal Year Nears End: Markets Wrap

(Bloomberg) — European and US equity futures edged lower and Asian shares were mixed on the final trading day of a brutal year in financial markets that has dragged stocks and bonds to their worst annual run in more than a decade.

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Stocks in Japan fell while equity benchmarks in Australia and China gained ground. Contracts for the Euro Stoxx 50 index fell alongside those of the S&P 500, taking the shine off the best day this month for the US index on Thursday when it jumped 1.7%. The dollar stemmed a decline from the prior session to trade flat, Treasury yields inched higher and the yen rallied as the Bank of Japan unveiled a third day of unscheduled bond purchases.

The uncertain direction sapped hopes for a stellar rally to close out 2022 — a year when inflation reasserted itself to wipe a fifth in value from global stocks, the worst run since the financial crisis. Few regions were spared the pain with Asian stocks falling more than 19% this year, a shade off the decline for global equities. Bonds lost 16% of value, the biggest decline since at least 1990 for one leading measure, as central banks raced to slow rising consumer prices by hiking interest rates around the world.

Nasdaq 100 futures also declined after the benchmark jumped 2.5% Thursday. The index has lost a third of value this year as tech stocks emerged as some of the most vulnerable to rising rates.

“I’m actually not so afraid of tech,” Sylvia Jablonski, CEO and CIO at Defiance ETFs, said on Bloomberg TV. “I do think you’re going to see a recovery later in the year in a lot of these stocks and I think that investors are a little bit too afraid of them right now. They’re going to miss out on a rebound opportunity in the next let’s say 6-9 months.”

Concerns about the global fallout from rising Covid-19 infections in China were partly eased when Italy said it didn’t find any new strains of the virus in recent Chinese arrivals. Italy and the US this week imposed testing requirements for airline passengers arriving from China as a wave of inflection grips the world’s most populous nation.

Read more: Yardeni Says Stock Bulls Have ‘Narrow Path’ to Victory in 2023

More market commentary

  • Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter:

    • “Markets enter 2023 at important transition points. One path is paved with continued disinflation, resilient earnings, moderating growth, a balanced labor market, and higher stock and bond prices. The other path is paved with sticky inflation, slowing growth, a continued tight labor market and lower stock and bond prices. Data points at the start of the year will offer important clues as to which path the markets are taking.”

  • Chris Gaffney, president of world markets at TIAA Bank:

    • “Going into the new year, I think investors are going to be focusing on the same things we were focusing on this year and that’s where the central banks are going to take interest rates, and are the inflation numbers going to force them to continue to be very aggressive with the rate hikes or will we see the cooling off that is expected and therefore will we see the markets rebound because the Fed takes a less aggressive stance. Another focus going into the New Year is China, China with the reopening.”

  • Craig Erlam, a senior market analyst at Oanda Europe Ltd.:

    • “Investors are going into 2023 with a cautious mindset, prepared for more rate hikes, and expecting recessions around the globe. And then there’s China and its u-turn on Covid prevention. It’s been quite the shift from fighting every case to living with the virus and that creates enormous uncertainty for the start of the year.”

Elsewhere in markets, oil rose after a three-day run of declines on worries about a rise in crude stockpiles and concerns that rising Covid-19 infections in China would slow demand in one of the world’s top oil importers.

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.3% as of 3:24 p.m. Tokyo time. The S&P 500 rose 1.7%

  • Nasdaq 100 futures fell 0.4%. The Nasdaq 100 rose 2.5%

  • S&P/ASX 200 Index rose 0.3%

  • Hong Kong’s Hang Seng rose 0.4%

  • The Shanghai Composite rose 0.6%

  • Euro Stoxx 50 futures fell 0.5%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro fell 0.1% to $1.0647

  • The Japanese yen rose 0.4% to 132.51 per dollar

  • The offshore yuan rose 0.1% to 6.9661 per dollar

Cryptocurrencies

  • Bitcoin fell 0.3% to $16,540.56

  • Ether fell 0.1% to $1,193.49

Bonds

  • The yield on 10-year Treasuries advanced two basis points to 3.83%

  • Japan’s 10-year yield declined four basis points to 0.42%

  • Australia’s 10-year yield advanced three basis points to 4.05%

Commodities

  • West Texas Intermediate crude rose 0.6% to $78.89 a barrel

  • Spot gold rose 0.3% to $1,819.55 an ounce

This story was produced with the assistance of Bloomberg Automation.

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