Stocks in Europe rose Tuesday along with US equity futures as some semblance of risk appetite returned to markets roiled by concerns about global economic growth, surging prices and policy tightening.

Travel and basic resources led a broad-based advance of the Stoxx Europe 600, setting the gauge on course for a third day of gains. Contracts on the S&P 500 and Nasdaq 100 bounced back after a Wall Street drop. Treasury yields rose and the dollar retreated.

Bond yields across Europe jumped, with the 10-year U.K. rate surging 10 basis points after data showed a decline in average earnings, intensifying a cost-of-living squeeze.

A challenging global economic outlook amid elevated food and fuel costs and tightening monetary settings continues to shape sentiment, although one bond-market measure -- the five-year breakeven rate -- is signaling inflation may have peaked. Oil has jumped to about $114 a barrel and an index of agricultural prices is at a record high.

“All-in-all, the price action is suggestive of a market that can’t decide what it wants to do,” said Jeffrey Halley, a market analyst at Oanda. “Concerns around recessions make me feel that a decent correction lower from the dollar and US yields is increasingly likely. I’m still not sure it provides markets with a reason to turn long once again on equities.”

An Asian share index rose for a third day -- it’s longest winning streak since mid-March -- amid a jump in some technology firms and as investors assessed China’s efforts to stamp out Covid. China’s tech companies rallied on optimism Beijing may ease up on a yearlong clampdown following a meeting between regulators and corporate giants.

Meanwhile, Shanghai reported three days of zero community transmission, a milestone that could lead officials to start unwinding a punishing lockdown. Flareups elsewhere in China showed how hard it is to tackle the omicron strain.

Cryptocurrencies weathered the latest stablecoin turbulence, leaving Bitcoin near $30,000.

Weak Data

US data Monday showed New York state manufacturing activity unexpectedly shrank in May for the second time in three months. That followed Chinese figures revealing a collapse in economic activity due to Covid-linked curbs.

The economic reports have fanned concerns of a downturn in the global economy alongside persistent price pressures that are forcing the Federal Reserve and a slew of other central banks to tighten monetary policy.

“With inflation showing little sign of letting up, the Fed is under pressure to accelerate the pace of tightening,” Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, said in a note. Taken together with the impact of Russia’s war in Ukraine and China’s Covid struggles, this backdrop “suggests global growth may be decelerating more quickly than forecast,” she said.

New York Fed President John Williams downplayed deteriorating liquidity conditions in financial markets, saying it was to be expected as investors grapple with uncertainty over global events and shifting U.S. monetary policy. Fed speakers including Chair Jerome Powell are due to speak later Tuesday.

What damage will be done to the US economy and global markets before the Fed changes tack and eases policy again? The “Fed Put” is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.

Source:
courtesy of BLOOMBERG

by Andreea Papuc and Robert Brand

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