European equity futures fell alongside shares in Asia after the worst day in two months for US stocks as investors priced in higher interest rates.
(Bloomberg) — European equity futures fell alongside shares in Asia after the worst day in two months for US stocks as investors priced in higher interest rates.
Contracts for the Euro Stoxx 50 edged lower and shares in Australia, Japan and mainland China fell. Hong Kong’s Hang Seng Index fluctuated after falling earlier in the day to levels that would mark a 10% correction from its late-January high.
US futures were up marginally after the S&P 500 tumbled 2% on Tuesday in a decline that touched all major sectors, while the tech-heavy Nasdaq 100 dropped 2.4%. Weak forecasts from US retailing bellwethers added to the negative tone.
The benchmark 10-year Treasury yield slipped slightly after rising 14 basis points Tuesday. Australian yields trimmed their gains after weaker-than-expected wages growth data, which also weighed on the Australian dollar.
The dollar was flat after an overnight rally against Group-of-10 currencies. Purchasing managers’ index readings for services and manufacturing that came in stronger than expected underpinned gains in Treasury yields and the currency.
The action in the US marked a shift in perception on rates. Investors are pricing in the federal funds rate climbing to around 5.3% in June. That compares with a perceived peak of 4.9% just three weeks ago and follows a ratcheting up of rhetoric from central bank officials over the past week.
BlackRock Investment Institute doesn’t see US inflation as being on track to return to policy targets. “We think investors are realizing that sticky core inflation may mean the Fed hikes rates further – and holds them there for longer – than markets had expected,” strategists including Wei Li and Scott Thiel wrote in a note.
At the same time, positive news on the outlook for growth implies that more policy tightening and weaker growth later will be needed to cool inflation. “That’s bad news for risk assets, in our view,” they wrote.
The yield on 10-year Japanese government debt touched 0.505%, breaching the Bank of Japan’s threshold for a second day as traders prepared to hear from the new central bank governor nominee.
The New Zealand dollar edged higher versus the greenback after the central bank raised interest rates 50 basis points. While the increase marks a downshift from prior hikes, policy makers still see higher rates ahead.
A rocky geopolitical outlook has not helped. President Vladimir Putin said Russia will suspend its observation of the New START nuclear weapons treaty with the US, a decision Secretary of State Antony Blinken called “irresponsible.” President Joe Biden hit back at Putin, saying he would never win his war in Ukraine.
The White House would be open to sanctioning Chinese companies that support Russia’s invasion of Ukraine, Deputy Treasury Secretary Wally Adeyemo said.
Elsewhere, oil dropped, with the price of Brent crude extending a Tuesday decline that has curtailed a recent rally driven by expectations of growing Chinese demand.
In Hong Kong, officials said the stock exchange was exploring arrangements to allow continuous trading through severe weather. Trading in shares and other types of securities can be halted when typhoons and other extreme weather events hit.
Key events this week:
- US MBA mortgage applications, Wednesday
- Federal Reserve releases minutes from its latest policy meeting, Wednesday
- Eurozone CPI, Thursday
- US GDP, initial jobless claims, Thursday
- Atlanta Fed President Raphael Bostic speaks, Thursday
- BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house, Friday
- US PCE deflator, personal spending, new home sales, University of Michigan consumer sentiment, Friday
- Russia’s invasion of Ukraine hits the one-year mark, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.1% as of 6:35 a.m. London time. The S&P 500 fell 2%
- Nasdaq 100 futures rose 0.1%. The Nasdaq 100 fell 2.4%
- Euro Stoxx 50 futures fell 0.2%
- Japan’s Topix index fell 1.1%
- South Korea’s Kospi index fell 1.7%
- Hong Kong’s Hang Seng Index fell 0.3%
- China’s Shanghai Composite Index fell 0.5%
- Australia’s S&P/ASX 200 Index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0656
- The Japanese yen rose 0.1% to 134.85 per dollar
- The offshore yuan fell 0.1% to 6.9014 per dollar
- The British pound was little changed at $1.2105
Cryptocurrencies
- Bitcoin fell 0.8% to $24,007.77
- Ether fell 0.2% to $1,639.89
Bonds
- The yield on 10-year Treasuries declined one basis point to 3.94%
- Australia’s 10-year yield advanced six basis points to 3.87%
Commodities
- West Texas Intermediate crude fell 0.7% to $75.84 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Akshay Chinchalkar and Tassia Sipahutar.
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