US stocks rally after Bullard downplays recession risk

Separately, data bolstered the case for the Fed to be more measured in lifting rates.

Sentiment improved further after the University of Michigan’s gauge of longer-term consumer inflation expectations settled back from an initially reported 14-year high, potentially reducing the urgency for steeper rate hikes.

In a note, JPMorgan Chase & Co’s Marko Kolanovic said month and quarter end rebalancing next week could lift US equities about 7 per cent.

“Next week’s rebalance is important since equity markets were down significantly over the past month, quarter and six-month time periods (hence the various rebalance frequencies reinforce each other), and it is happening in a period of low liquidity.

“On top of that, the market is in an oversold condition, cash balances are at record levels, and recent market shorting activity reached levels not seen since 2008.”

Goldman Sachs chief economist Jan Hatzius also sounded positive on the outlook: “We don’t have a recession in our base-line forecast. We do have significantly below-trend growth. That rebalances the imbalance in the labour market and that ultimately helps bring inflation back down.”

To be sure, the Goldman economist says the risk of a recession has gone up. “If we do have a recession, it’s likely that it would be on the shallower end. Private-sector balance sheets are in better shape than at the end of previous business cycles.”

Also, Hatzius said, “while inflation is very high, I don’t think it’s as entrenched, certainly not as entrenched in inflation expectations, as it was in previous higher inflation episodes in the 1970s and early 1980s.”

Investors continued to pull cash from equity funds, which recorded their biggest outflows in nine weeks amid rising recession risk.

About $US16.8 billion exited global stock funds in the week through June 22, with US equities seeing their first outflow in seven weeks at $US17.4 billion, Bank of America said, citing EPFR Global data.

Market highlights

ASX futures up 103 points or 1.59 per cent to 6573 near 7am AEST

• AUD +0.7% to 69.45 US cents
• Bitcoin +2.8% to $US21,303.35 at 7.30am AEST
• On Wall St: Dow +2.7% S&P 500 +3.1% Nasdaq +3.3%
• In New York: BHP +2.9% Rio +3.1% Atlassian +6.2%
• Tesla +4.5% Apple +2.5% Amazon +3.6% Alphabet +5.2%
• In Europe: Stoxx 50 +2.8% FTSE +2.7% CAC +3.2% DAX +1.6%
• Spot gold +0.2% to $US1826.88 an ounce at 4.59pm New York time
• Brent crude +2.4% to $US112.66 a barrel
• Iron ore -0.9% to $US115 a tonne
• 10-year yield: US 3.13% Australia 3.71% Germany 1.43%
• US prices as of 4.59pm in New York

United States

The University of Michigan said its final consumer sentiment index fell to 50.0 from a preliminary reading of 50.2 earlier this month. It was down from 55.2 in May.

The survey’s one-year inflation expectation was unchanged from May at 5.3 per cent, but ticked down from a preliminary June reading of 5.4 per cent. The five-year inflation outlook edged up to 3.1 per cent from 3.0 per cent in May, but was down from 3.3 per cent earlier in June.

A US judge refused to dismiss a $US6.4 billion lawsuit accusing Bristol Myers Squibb of delaying its Breyanzi cancer drug to avoid payments to shareholders of the former Celgene, which the drugmaker bought for $US80.3 billion in 2019.

United Airlines Holdings pilots tentatively agreed to a new contract that gives them 14.5 per cent raises, increased overtime pay and other benefits, setting the standard as other major carriers negotiate deals with their aviators at a time of rebounding travel demand.

Europe

European stocks jumped 2.6 per cent on Friday, pushing them into positive territory for the week as investors started to scale back central bank tightening bets, spurring inflows into risky assets.

The pan-European STOXX 600 index marked its best session in more than three months. It had hit a fresh 2022 low in the previous session when weaker-than-expected euro zone business activity data weighed on sentiment.

The benchmark, which until Thursday was down on the week, posted weekly gains of 2.4 per cent thanks to Friday’s surge, breaking a three-week losing streak.

Healthcare, banks and technology, sectors led broad-based gains on the day. The retail sector which had dropped almost 3 per cent in the session to March 2020 lows, erased those losses to end 1.9 per cent higher for its best day in more than three months.

France’s Sanofi and UK’s GlaxoSmithKline rose 5.0 per cent and 2.1 per cent after a late-stage data on an experimental COVID-19 vaccine from the drugmakers showed the shot confers protection against the omicron variant of the vaccine.

Commodities

Copper prices were on Friday set for their biggest weekly fall in a year, down around 6.5 per cent, as investors worried that efforts by central banks to stem inflation will stifle global economic growth and reduce demand for metals.

Other industrial metals also tumbled, with nickel shedding around 13 per cent this week and tin sliding 22 per cent, its biggest weekly slump since at least 2005.

“There is a risk of further losses,” said independent analyst Robin Bhar. “A sharp economic slowdown or recession seems to be on the cards.”

Benchmark copper on the London Metal Exchange was 0.5 per cent lower at $US8367 a tonne at 1605 GMT after touching $US8122.50, down 25 per cent from a peak in March and the lowest level since February 2021.

Bhar said copper, used in power and construction, could fall towards its cost of production, around $US7000-$US7500, but tight supply and rising demand for use in electrification later in the decade will lift prices.

With Reuters, Bloomberg