(Bloomberg) — Stocks fell, while bonds rose amid fears that Federal Reserve rate hikes aimed at taming runaway inflation will sink the economy into a recession.
The S&P 500 wiped out its gains as a rally in technology giants fizzled out.
Traders are bracing for the second-quarter earnings season, which may provide clues on how companies are weathering price pressures and intense currency volatility.
The dollar hovered around 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.
Treasuries rose, taking the US 10-year yield near 2.9%. 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.
Bank stocks were the worst performers as Spanish lenders slumped in Madrid after Prime Minister Pedro Sanchez said the country will impose a new tax on “big financial institutions.” Utilities outperforming as EDF jumped after a report that the French government will pay a premium to take control of the electricity company.
Commodities were under pressure, with crude oil falling below $100 a barrel in New York.
Bitcoin dropped below $20,000.
Covid Concern
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. A gauge of Asia-Pacific stocks fell to a two-year low.
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
- 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
- The S&P 500 fell 0.1% as of 9:59 a.m.
New York time
- The Nasdaq 100 fell 0.2%
- The Dow Jones Industrial Average rose 0.2%
- The Stoxx Europe 600 fell 0.1%
- The MSCI World index fell 0.4%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0046
- The British pound fell 0.1% to $1.1877
- The Japanese yen rose 0.6% to 136.60 per dollar
Bonds
- The yield on 10-year Treasuries declined eight basis points to 2.91%
- Germany’s 10-year yield declined 13 basis points to 1.12%
- Britain’s 10-year yield declined 14 basis points to 2.04%
Commodities
- West Texas Intermediate crude fell 6.1% to $97.71 a barrel
- Gold futures fell 0.2% to $1,727.50 an ounce
More stories like this are available on bloomberg.com
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