US equity futures swung between losses and gains as investors weighed up how central bank policy-tightening would ripple through the global economy and company earnings. The dollar was buoyed by haven demand.
(Bloomberg) — US equity futures swung between losses and gains as investors weighed up how central bank policy-tightening would ripple through the global economy and company earnings.
The dollar was buoyed by haven demand.
Contracts on both the S&P 500 and Nasdaq 100 swung higher, erasing earlier losses sparked by an escalation in the Russia-Ukraine war and anxiety about the resilience of corporate balance sheets to policy tightening.
Ford Motor Co. and General Motors Co. shed more than 3% after UBS downgraded its view on the stocks, citing the risk to sales from a potential economic recession.
The mood remains fragile ahead of Thursday’s US inflation data and a raft of bank earnings that will kick off the third-quarter season in earnest.
A hotter-than-expected inflation reading, coming on top of last week’s strong labor print, will heap pressure on policy makers to extend 75 basis-point rate hikes beyond this year.
“Given continued Fed tightening, both macroeconomic conditions and risk markets are likely to weaken considerably over the next few quarters,” Erik Weisman, a portfolio manager at MFS Investment Management, wrote in a note to clients.
“Fed tightening acts on the economy only with a significant lag.”
Signs of a dangerous new escalation in the Russia-Ukraine war also sapped risk appetite, lifting the dollar against other currencies, while British authorities’ latest efforts to support jittery markets largely failed to reassure pound traders.
The relentless central bank policy-tightening is making investors increasingly gloomy about the upcoming earnings season.
JPMorgan Chase & Co. and Citigroup Inc. are among the big banks that will unveil earnings later this week.
Even after this year’s brutal selloff, markets have not priced all the risks stemming from higher interest rates and stubbornly high inflation.
More than 60% of the 724 respondents to Bloomberg’s latest MLIV Pulse survey predicted the earnings season would push the S&P 500 Index lower. Strategists at Goldman Sachs Group Inc. and Morgan Stanley warned it would be a difficult reporting season, given risks such as slowing demand and soaring costs
“The bear market will not be over until the deteriorating fundamental picture is more fully discounted,” Morgan Stanley strategists told clients.
Europe’s broad Stoxx 600 gauge rose 0.2%, erasing earlier losses.
Meanwhile, Britain stepped up efforts to support market functioning.
The Bank of England extended emergency measures backing the bond market through early next month while Chancellor of the Exchequer Kwasi Kwarteng brought forward the date at which he will deliver his much-awaited fiscal strategy.
Despite the measures, 30-year borrowing costs rising above 4.5%.
The pound slipped to trade at a 12-day low.
“The BOE is going to calm the market, but it’s not going to save the market,” said Geoffrey Yu, a senior strategist at Bank of New York Mellon in London.
The central bank “is not going to cap yields,” he said.
Key events this week:
- Earnings this week include: JPMorgan Chase & Co., Citigroup Inc., Morgan Stanley, BlackRock, Delta Air Lines, Fast Retailing, Infosys, PepsiCo, TSMC, Tata Consultancy, UnitedHealth, U.S.
Bancorp, Walgreens Boots, Wells Fargo, Wipro
- Fed’s Lael Brainard and Charles Evans speak, Monday
- IMF’s World Economic Outlook and Global Financial Stability Report, Tuesday
- Fed’s Loretta Mester speaks, Tuesday
- BOE’s Andrew Bailey speaks, Tuesday
- FOMC minutes for September meeting, Wednesday
- US PPI, mortgage applications, Wednesday
- OPEC Monthly Oil Market Report, Wednesday
- Fed’s Michelle Bowman and Neel Kashkari speak
- ECB’s Christine Lagarde speaks
- US CPI, initial jobless claims, Thursday
- G-20 finance ministers and central bankers meet, Thursday
- China CPI, PPI, trade, Friday
- US retail sales, business inventories, University of Michigan consumer sentiment, Friday
- BOE emergency bond buying is set to end, Friday
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
