(Bloomberg) — US equity futures fell Tuesday as the dollar and sovereign bonds rose, a pattern highlighting pervasive unease about the economic outlook amid high inflation and China’s struggles with Covid.
The S&P 500 and Nasdaq 100 shed about 0.5% each after a Wall Street slide Monday, as traders brace for the second-quarter earnings season which may provide clues on how companies are weathering inflation and recession concerns.
PepsiCo Inc., one of the first major industry players to report, rose in premarket trading after lifting its revenue forecast. The soft-drinks maker said demand remained robust despite inflation, though it expected headwinds from the strong dollar.
The dollar pushed toward levels last seen at the height of the 2020 market panic over Covid and the yen strengthened, underlining investor caution.
The euro-area’s common currency, meanwhile, came within a whisker of parity with the greenback, sapped by the region’s energy crisis and acute recession fears.
Treasuries extended gains, taking the US 10-year yield to 2.92%.
Bonds also rallied in Europe. German bonds surged, sending the benchmark 10-year yield to the lowest since May, after data showed investor confidence plunged to a 2011 low.
Much is riding on upcoming company profit filings and this week’s US inflation data.
A brief equity rebound from this year’s rout is already fizzling ahead of the reports. Risk appetite may struggle to digest a darkening earnings outlook alongside stubborn price pressures that point to more monetary tightening.
Dollar strength will not only “affect this quarter’s earnings, but more likely it’s going to affect the revenue generation outlook for the next couple of quarters and that, I think, is a big problem,” Kimberly Forrest, founder and chief investment officer of Bokeh Capital Partners, said on Bloomberg Radio.
The Stoxx Europe 600 gauge slipped for a second day, though it pared the decline with utilities outperforming as EDF jumped after a report that the French government will pay a premium to take control of the electricity company.
An Asian share index headed for its biggest two-day drop in a month.
Commodities including oil and iron ore were under pressure. Bitcoin dropped below $20,000.
In China, investors are concerned more Covid lockdowns may lie ahead as Beijing continues with a strategy of mass testing and mobility curbs.
A government push for stimulus to shore up growth is starting to have an impact: credit jumped last month to the highest on record for June.
Meanwhile, the latest Fed commentary highlighted both the central bank’s hawkishness and the risks that come with aggressive interest-rate hikes.
Fed Bank of Atlanta President Raphael Bostic said the US economy can cope with higher interest rates and repeated his support for another jumbo move this month.
Fed Bank of Kansas City President Esther George, who dissented last month against the central bank’s 75 basis-point rate increase, cautioned that rushing to tighten policy could backfire.
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What to watch this week:
- Earnings due from JPMorgan, Morgan Stanley, Citigroup, Wells Fargo
- Amazon.com Inc.
kicks off its Prime Day event, Tuesday
- South Korea, New Zealand rate decisions, Wednesday
- US CPI data, Wednesday
- Federal Reserve Beige Book, Wednesday
- US PPI, jobless claims, Thursday
- China GDP, Friday
- US business inventories, industrial production, University of Michigan consumer sentiment, Empire manufacturing, retail sales, Friday
- G-20 finance ministers, central bankers meet in Bali, from Friday
- Atlanta Fed President Raphael Bostic speaks, Friday
Some of the main moves in markets:
Stocks
- Futures on the S&P 500 fell 0.6% as of 6:34 a.m.
New York time
- Futures on the Nasdaq 100 fell 0.5%
- Futures on the Dow Jones Industrial Average fell 0.7%
- The Stoxx Europe 600 fell 0.3%
- The MSCI World index fell 0.4%
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.3% to $1.0008
- The British pound fell 0.5% to $1.1836
- The Japanese yen rose 0.3% to 136.96 per dollar
Bonds
- The yield on 10-year Treasuries declined seven basis points to 2.92%
- Germany’s 10-year yield declined 12 basis points to 1.13%
- Britain’s 10-year yield declined 14 basis points to 2.04%
Commodities
- West Texas Intermediate crude fell 2.5% to $101.50 a barrel
- Gold futures were little changed
More stories like this are available on bloomberg.com
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