Stocks fall in cautious start to key Fed decisions week

Bloomberg

Stocks slid with US equity futures in a cautious start on Monday as investors await a slew of interest rate decisions in the days ahead and after global equities notched their worst week since hitting this year’s low in June.
Futures on the S&P 500 index dropped 1% along with the Nasdaq 100, indicating extended declines for the benchmark after its steepest weekly decline since June 17. The Stoxx Europe 600 Index headed for its lowest close since July 5, wiping out most of its summer rally.
The weakness in markets reflects expectations for an outsized interest rate hike from the Federal Reserve on Wednesday and worries that its aggressive tightening to quell inflation will trigger a recession.
Investors also face potential volatility from policy decisions this week by the Bank of England, the Bank of Japan and a host of other central banks. The British pound sank to its weakest level against the dollar since 1985 on Friday and the yen remains under pressure, though it has backed off from below the key 145 level versus the dollar. A gauge of the greenback rose.
“The aggressive tightening of policy in the coming 4-6 months, not just in the US but globally, increases the risk of a recession next year,” said Maria Landeborn, a senior strategist at Danske Bank A/S.
The slump in global stocks deepened after hotter-than-expected inflation data spurred traders to ratchet up wagers for rate hikes. Swaps continue to price in a 75 basis-point hike when the Fed meets — with some wagers leaning towards a full point.
Top Wall Street strategists see mounting risks for US earnings and equity valuations. Both Morgan Stanley’s Michael J Wilson and Goldman Sachs’s David J Kostin said headwinds to profitability are building, highlighting tighter monetary policy and pressure on company margins. Traders briefly priced the Fed’s policy rate peaking at 4.5% in March as the central bank escalates its effort to contain inflation. That expected peak was up by a full percentage point since the Fed’s last policy meeting in July.
Activity was muted by a holiday in Japan and the UK observing a day of mourning for Queen Elizabeth II, with no trading in cash Treasuries during the Asian and European sessions.
Cryptocurrencies were also weighed by pre-Fed jitters. Bitcoin fell below $19,000 while Ether extended its drop after its blockchain was upgraded.
In US premarket trading, big tech stocks including Apple Inc and Microsoft Corp slipped.
Futures on the S&P 500 fell 1% in New York. Futures on the Nasdaq 100 fell 1.1%. Futures on the Dow Jones Industrial Average fell 1%. The Stoxx Europe 600 fell 1%. The MSCI World index fell 0.4%.
The Bloomberg Dollar Spot Index rose 0.4%. The euro fell 0.4% to $0.9976. The British pound fell 0.5% to $1.1360. The Japanese yen fell 0.4% to 143.47 per dollar.
The yield on 10-year Treasuries advanced three basis points to 3.48%. Germany’s 10-year yield advanced three basis points to 1.79%.