US equity futures declined along with stocks in Europe after policy makers from the world’s biggest central banks reaffirmed they will follow through with higher interest rates even as economies come under strain. Treasury yields rose.
(Bloomberg) — US equity futures declined along with stocks in Europe after policy makers from the world’s biggest central banks reaffirmed they will follow through with higher interest rates even as economies come under strain. Treasury yields rose.
Contracts on the S&P 500 and Nasdaq 100 retreated, with the latter underperforming after the tech-heavy gauge slumped the most in more than two months on Friday. A global share index fell to a one-month low and European stocks extended last week’s drop, with the rates-sensitive technology sector leading a broad-based decline.
The US two-year yield, sensitive to expectations around Fed policy, reached 3.47% in Asian trading, the highest since the global financial crisis. The 10-year yield climbed to about 3.10%. The Bloomberg Dollar Spot Index pushed toward the record hit last month before paring the advance.
Global markets are balancing inflation risks against the threat of an economic slowdown that may be exacerbated by aggressive central bank rate hikes. Some investors had been positioning for a pivot away from tightening, a narrative that was scuttled by Fed Chair Jerome Powell and others at the Jackson Hole central bankers’ meeting.
“We maintain our view that the Fed will raise rates by another 100 basis points by year-end, with risks for more if inflation does not slow in line with our forecasts,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “With rates likely to stay higher for longer, our base case is for further volatility, earnings downgrades, and higher-than-expected default rates over the course of the next year.”
Bonds in Europe tumbled, with Germany’s 10-year yield rising as high as 1.5% after a string of European Central Bank officials over the weekend stressed the need to act more forcefully to quash record inflation. The euro strengthened above parity with the dollar.
Powell in his address at the Fed’s Jackson Hole symposium flagged the likely need for restrictive monetary policy for some time to curb high inflation and cautioned against loosening monetary conditions prematurely. He also warned of the potential for economic pain for households and businesses.
ECB officials read from a similar script. Austria’s Robert Holzmann and Dutch colleague Klaas Knot both floated the prospect of an unprecedented three-quarter point hike at their meeting in September. Executive Board member Isabel Schnabel warned that the likelihood of inflation expectations becoming unanchored is uncomfortably high.
Tech firms led losses for Asian equities, while progress in the US-China delisting spat helped to cushion Chinese stocks. Emerging-market stocks dropped and a gauge of major developing-nation currencies slumped by the most in more than two months.
Bitcoin held below the $20,000 level some view as a marker of a deeper slide in investor sentiment. Gold retreated, but oil made gains on supply risks. Meanwhile, European natural gas prices plunged the most since March after Germany said its gas stores are filling up faster than planned ahead of winter.
Here are some key events to watch this week:
- US consumer confidence, Tuesday
- New York Fed President John Williams due to speak, Tuesday
- ECB Governing Council members due to speak at event Tuesday through Sept. 2
- China PMI, Wednesday
- Euro-area CPI, Wednesday
- Russia’s Gazprom set to halt Nord Stream pipeline gas flows for three days of maintenance, Wednesday
- Cleveland Fed President Loretta Mester due to speak, Wednesday
- China Caixin manufacturing PMI, Thursday
- US nonfarm payrolls, Friday
- UK leadership ballot closes Friday. Winner announced Sept. 5
Some of the main moves in markets:
Stocks
- Futures on the S&P 500 fell 0.8% as of 8:38 a.m. New York time
- Futures on the Nasdaq 100 fell 0.9%
- Futures on the Dow Jones Industrial Average fell 0.7%
- The Stoxx Europe 600 fell 0.9%
- The MSCI World index fell 0.5%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.5% to $1.0017
- The British pound fell 0.1% to $1.1728
- The Japanese yen fell 0.6% to 138.40 per dollar
Bonds
- The yield on 10-year Treasuries advanced five basis points to 3.09%
- Germany’s 10-year yield advanced eight basis points to 1.47%
Commodities
- West Texas Intermediate crude rose 1.4% to $94.33 a barrel
- Gold futures fell 0.5% to $1,741.80 an ounce
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