Stocks, US Futures Drop as Fed Outlook Takes Toll: Markets Wrap

(Bloomberg) — Stocks fell on Monday along with US equity futures on rising threats to global economic growth, particularly the Federal Reserve’s commitment to tighter monetary settings to quell inflation.

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Losses in Japan, Australia and South Korea were in the region of 1%, after the worst week for global stocks since the end of June.

The S&P 500, Nasdaq 100 and European contracts suffered losses and the dollar gauge was at more than a month’s peak, adding further investor warnings.

Sovereign bonds in Australia and New Zealand fell and the US 10-year Treasury yield climbed to nearly 2.99%, extending the sell-off from Friday.

The rally in global stocks has begun to cool off from June’s bear-market lows, weighed down by repeated Fed warnings that interest rates are going higher. Troubled global economic growth, including a recent power outage in a Chinese industrial sector, is also hanging on to investors.

Key to the markets this week is the Fed’s symposium in Jackson Hole, Wyoming. The recent stock boom has loosened financial conditions, making inflation harder to deal with.

The symposium provides a forum for Fed Chair Jerome Powell to reset market expectations for a pivot to slower rate hikes. The latter bets have helped drive the recent equities rebound, but are vulnerable to the prospect of continued higher price pressures despite a halt to economic growth.

‘Hawkish to stay’

“It is likely that central bankers, including Fed Chair Powell, will continue to be nimble in dealing with inflation, even with some caution given the emerging economic slowdown,” Shane Oliver, head of investment strategy at AMP Services Ltd., wrote in a statement. Comment.

In China, Bloomberg Economics expects lending rates to fall by 10 basis points after Monday, as banks follow the People’s Bank of China’s decision to cut a key policy rate.

The world’s second-largest economy, aside from power shortages in Sichuan province, a major manufacturing hub, is facing mobility restrictions amid rising COVID cases and asset-sector woes.

The Chinese demand outlook is weighing on oil, which fell below $90 a barrel. Traders oversee Iran nuclear talks that could lead to more supplies.

What to watch this week:

  • China loan prime rates, Monday

  • US New Home Sales, S&P Global PMI, Tuesday

  • The Fed’s Neil Kashkari speaks in Tuesday’s Q&A session

  • US Durable Goods, MBA Mortgage Application, Pending Home Sales, Wednesday

  • US GDP, initial jobless claims. Thursday

  • Fed Annual Policy Symposium in Jackson Hole, Wyoming, Thursday

  • ECB’s July Minutes, Thursday

  • Fed Chair Powell speaks in Jackson Hole on Friday

  • US Consumer Earnings, PCE Deflator, Friday

Some of the main moves in the markets:

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  • As of 9:26 a.m. in Tokyo, S&P 500 futures were down 0.6%. S&P 500 dropped 1.3%

  • Nasdaq 100 futures dropped 0.7%. Nasdaq 100 fell 2%

  • Japan’s Topix Index dropped 0.7%

  • Australia’s S&P/ASX 200 index was down 1.1%

  • South Korea’s Kospi index drops 1.2%

  • Hang Seng Index futures fell 0.9% earlier

currencies

  • Bloomberg Dollar Spot Index up 0.2%

  • The euro was down 0.1% at $1.0027

  • The Japanese yen was down 0.2% at 137.24 per dollar

  • The offshore yuan was down 0.1% at 6.8440 per dollar

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Goods

  • West Texas Intermediate crude fell 1.2% to $89.70 a barrel

  • Gold was down 0.1% at $1,745.26 an ounce

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