U.S. equity-index futures and European stocks fell as investors worried about the prospects of interest-rates staying higher for longer and a deepening of geopolitical tensions. The dollar rebounded on haven appeal.
(Bloomberg) — U.S. equity-index futures and European stocks fell as investors worried about the prospects of interest-rates staying higher for longer and a deepening of geopolitical tensions. The dollar rebounded on haven appeal.
Contracts on the S&P 500 and Nasdaq 100 indexes dropped at least 0.7% each with US markets set to return from a holiday. European stocks opened lower as the region’s traders focused on corporate earnings. Chinese technology shares declined amid a brewing price war among e-commerce firms. Treasuries slid across the curve. Oil resumed losses as concerns over a hawkish Federal Reserve overshadowed optimism about China’s economy.
A start-of-the-year rally in global stocks has fizzled, and the dollar resumed gains, after central bankers reaffirmed their will to combat inflation. That, and a stubborn trend in prices, have pushed traders to factor in another 75 basis points of rate hikes by the Federal Reserve by July. They also pruned their bets for the first US rate cut: swaps now expect a 20 basis-point reduction by year-end, compared with a 50 basis-point move seen earlier this month.
“The market has started to price a higher terminal rate and fewer cuts past the peak,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note. “While the broad risk-on rally has slowed to a crawl, the higher terminal rates have not moved through assets like a wrecking ball as some had assumed. But there remains a heightened degree of caution due to the steep rise in US yields and rate volatility, an environment where the US dollar tends to benefit.”
The dollar rose for the first time in three days, trading above its 50-day moving average. Yet technical patterns suggest the greenback isn’t fully out of the woods yet. While the Bloomberg Dollar Spot Index is heading for the best monthly gain since September, it has just completed the so-called “death cross” between its 100-day and 200-day averages, signaling the downtrend remains intact.
The Stoxx 600 gauge fell, dragged by technology and commodity stocks. In China, JD.com led a decline among technology peers following a report that the e-commerce firm is planning a subsidy campaign as it ratchets up a price war against rivals.
The Japanese 10-year yield briefly rose above the central bank’s 0.5% yield curve control target for the first time since January. Investors are readying to hear from Kazuo Ueda, the nominee for the Bank of Japan governorship, who is due to face confirmation hearings in parliament on Friday.
Benchmark two-year yields on New Zealand government bonds rose Tuesday while Australian yields ticked higher. Economists expect the Reserve Bank of New Zealand to hike its policy rate by 50 basis points on Wednesday.
Elsewhere, trading of oil was choppy as investors weighed the possibility of further monetary tightening against signs of improving demand from China.
Key events this week:
- Earnings for the week are scheduled to include: Alibaba, Anglo American, AXA, BAE Systems, Baidu, BASF, Danone, Deutsche Telekom, Holcim, Home Depot, Hong Kong Exchanges & Clearing, Iberdrola, Lloyds Banking Group, Moderna, Munich Re, Newmont, Nvidia, Rio Tinto, Walmart, Warner Bros Discovery
- PMIs for Japan, Eurozone, UK, US, Tuesday
- US existing home sales, Tuesday
- US MBA mortgage applications, Wednesday
- The Federal Reserve minutes from Jan. 31-Feb. 1 policy meeting, Wednesday
- Eurozone CPI, Thursday
- US GDP, initial jobless claims, Thursday
- Atlanta Fed President Raphael Bostic speaks, Thursday
- G-20 finance ministers and central bank governors meet in India, Thursday-Friday
- Japan CPI, Friday
- BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.4% as of 8:40 a.m. London time
- S&P 500 futures fell 0.7%
- Nasdaq 100 futures fell 0.9%
- Futures on the Dow Jones Industrial Average fell 0.5%
- The MSCI Asia Pacific Index fell 0.8%
- The MSCI Emerging Markets Index fell 0.9%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.1% to $1.0670
- The Japanese yen fell 0.4% to 134.80 per dollar
- The offshore yuan fell 0.3% to 6.8813 per dollar
- The British pound fell 0.2% to $1.2019
Cryptocurrencies
- Bitcoin rose 0.4% to $24,866.63
- Ether fell 0.5% to $1,692.53
Bonds
- The yield on 10-year Treasuries advanced five basis points to 3.87%
- Germany’s 10-year yield advanced three basis points to 2.49%
- Britain’s 10-year yield advanced four basis points to 3.51%
Commodities
- Brent crude fell 0.6% to $83.55 a barrel
- Spot gold fell 0.5% to $1,831.61 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar and Richard Henderson.
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