Stocks struggled on Tuesday as the second-quarter rally met resistance from economic headwinds and signs that positioning is overbought.
(Bloomberg) — Stocks struggled on Tuesday as the second-quarter rally met resistance from economic headwinds and signs that positioning is overbought.
European stocks were little changed as worries about the Chinese economy curbed risk appetite. Specialty chemicals company Lanxess AG fell as much as 15% on a profit warning, dragging shares of peers including BASF SE lower. Drug maker Sanofi gained the most since March after a favorable arbitration ruling. US contracts declined after Wall Street was shut for a holiday Monday. An index of Asia-Pacific shares fell.
Investors caught between fear of missing out and concerns markets have run too far, too fast are contending with overblown valuations and economic headwinds. Bullish positioning in US equity futures grew last week, taking it to the most extended levels for the S&P 500 and Nasdaq 100 in data going back to 2010, according to Citigroup strategists.
The path of US monetary policy is another wild card. Federal Reserve Chair Jerome Powell will give his semi-annual report to Congress on Wednesday. Policymakers at the Fed kept interest rates unchanged at their latest meeting but warned of more tightening ahead. Investors also await the outcome of policy meetings in Turkey, the UK and Switzerland.
“The focus this week remains on the central banks and whether we are as close to the end of the tightening cycle as everyone wants to believe,” said Craig Erlam, a senior market analyst at Oanda. “Markets have been overly optimistic. The data simply hasn’t justified changing course yet. Rate cuts this year look more fantasy than reality now.”
The Fed decision last week came with forecasts for higher borrowing costs of 5.6% in 2023, implying two additional quarter-point rate hikes or one half-point increase before the end of the year.
Elsewhere in markets, US Treasury yields rose after the break from trading Monday. Oil fell as China’s plans to support its economy were seen as insufficient to reignite demand.
Alibaba Group Holding Ltd. whipsawed before trading about 1.5% lower Tuesday following the surprise replacement of its chief executive and chairman.
Key events this week:
- US housing starts, Tuesday
- Federal Reserve Bank of St. Louis President James Bullard speaks, Tuesday
- New York Fed President John Williams speaks, Tuesday
- Federal Reserve Chair Jerome Powell delivers semi-annual congressional testimony before the House Financial Services Committee, Wednesday
- Federal Reserve Bank of Chicago President Austan Goolsbee speaks, Wednesday
- Eurozone consumer confidence, Thursday
- Rate decisions in UK, Switzerland, Indonesia, Norway, Mexico, Philippines, Turkey, Thursday
- US Conference Board leading index, initial jobless claims, current account, existing home sales, Thursday
- Federal Reserve Chair Jerome Powell delivers semi-annual testimony to Congress before the Senate Banking Committee, Thursday
- Cleveland Fed’s Loretta Mester speaks, Thursday
- Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
- Japan CPI, Friday
- US S&P Global Manufacturing PMI, Friday
- Federal Reserve Bank of St. Louis President James Bullard speaks, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 was little changed as of 9:05 a.m. London time
- S&P 500 futures fell 0.2%
- Nasdaq 100 futures fell 0.2%
- Futures on the Dow Jones Industrial Average fell 0.3%
- The MSCI Asia Pacific Index fell 0.6%
- The MSCI Emerging Markets Index fell 0.8%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.2% to $1.0939
- The Japanese yen rose 0.2% to 141.76 per dollar
- The offshore yuan fell 0.2% to 7.1782 per dollar
- The British pound was little changed at $1.2798
Cryptocurrencies
- Bitcoin rose 0.3% to $26,806.62
- Ether fell 0.1% to $1,727.66
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.78%
- Germany’s 10-year yield declined four basis points to 2.48%
- Britain’s 10-year yield declined four basis points to 4.45%
Commodities
- Brent crude rose 0.4% to $76.42 a barrel
- Spot gold rose 0.2% to $1,954.78 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sagarika Jaisinghani, Brett Miller and Joe Easton.
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