Stocks, US Futures Drop as Fed Outlook Takes Toll: Markets Wrap

(Bloomberg) — Stocks fell along with US equity futures Monday on escalating threats to global economic growth, in particular the Federal Reserve’s commitment to tighter monetary settings to quell inflation.

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Bourses in Japan, Australia and South Korea posted losses but were off session lows following the worst week for global shares since late June.

S&P 500, Nasdaq 100 and European contracts suffered declines and a dollar gauge was at a more than one-month peak, further signs of investor wariness.

Sovereign-bonds in Australia and New Zealand dropped and the US 10-year Treasury yield climbed to about 2.99%, extending a selloff from Friday.

A jump in global shares from June’s bear-market lows has begun to cool, weighed down by repeated Fed warnings that interest rates are going higher. Troubling global economic developments, lately including power shortages in a Chinese industrial heartland, are also hanging over investors.

Key for markets this week is the Fed’s symposium at Jackson Hole, Wyoming. The recent stock bounce has loosened financial conditions, which makes it harder to tackle inflation.

The symposium gives Fed Chair Jerome Powell a platform to reset the market’s expectations for a pivot to slower rate hikes. The latter bets have helped to drive the recent equity rebound but are vulnerable to the possibility of persistently elevated price pressures even as economic growth stumbles.

‘Remain Hawkish’

“It is likely central bankers, including Fed Chair Powell, will remain hawkish in dealing with inflation albeit with a bit of caution creeping in given the emerging economic downturn,” Shane Oliver, head of investment strategy at AMP Services Ltd., wrote in a note.

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In China, banks lowered the one-year and five-year loan prime rates on Monday in the slipstream of a decision by the nation’s central bank last week to cut a key policy rate.

The world’s second-largest economy faces mobility curbs amid rising Covid cases and continuing property-sector woes, aside from a power crunch in Sichuan province, a key manufacturing hub.

The Chinese demand outlook is weighing in oil, which sank below $90 a barrel. Traders are monitoring Iran nuclear talks that could lead to more supplies.

What to watch this week:

• US new home sales, S&P Global PMIs, Tuesday

• Fed’s Neel Kashkari speaks at Q&A session, Tuesday

• US durable goods, MBA mortgage applications, pending home sales, Wednesday

• US GDP, initial jobless claims. Thursday

• Fed annual policy symposium in Jackson Hole, Wyoming, Thursday

• ECB’s July minutes, Thursday

• Fed Chair Powell speaks at Jackson Hole, Friday

• US consumer income, PCE deflator, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures lost 0.4% as of 10:26 a.m. in Tokyo. The S&P 500 fell 1.3%

• Nasdaq 100 futures shed 0.5%. The Nasdaq 100 fell 2%

• Japan’s Topix index fell 0.3%

• Australia’s S&P/ASX 200 index was 0.9% lower

• South Korea’s Kospi index declined 0.8%

• Hang Seng index futures fell 0.9% earlier

Currencies

• The Bloomberg Dollar Spot Index added 0.2%

• The euro was at $1.0027, down 0.1%

• The Japanese yen was at 137.32 per dollar, down 0.3%

• The offshore yuan was at 6.8439 per dollar, down 0.1%

Bonds

Commodities

• West Texas Intermediate crude dropped 1.1% to $89.78 a barrel

• Gold was at $1,746.42 an ounce

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