Stocks slump amid Fed, China risks; dollar gains

Bloomberg

Stocks in Europe plunged and US equity futures declined at the start of a week abounding with risks including spillover from China Evergrande Group’s debt woes, falling commodity prices and the Federal Reserve policy meeting.
The Stoxx Europe 600 index dropped 1.6%, on track for the biggest decline in two months. Raw materials led the broad-based retreat as iron ore extended a slump below $100 a ton after China stepped up restrictions on industrial activity. Base metals including copper also fell as the dollar rises before Wednesday’s Fed meeting, where policy makers are expected to start laying groundwork for paring stimulus. Treasury yields ticked lower.
US contracts dropped after the S&P 500 slid the most in a month, a test for the buy-the-dip mentality as the gauge jabs at its 50-day moving average. Hong Kong shares tumbled amid the biggest selloff in property stocks in more than a year as traders tracked the risk of contagion from the debt crisis at developer Evergrande, which is fuelling new fears about China’s growth path. The offshore yuan
declined.
Aside from Evergrande and the prospect of reduced Fed stimulus, financial markets also face risks from uncertainty over the outlook for President Joe Biden’s $4 trillion economic agenda as well as the need to raise or suspend the US debt ceiling. Investors were already fretting over a slowing global recovery from the pandemic and inflation stoked by commodity prices.
“The edges of the bullish narrative cover are being pulled and the darker underlying reality is coming to the fore,” said Sebastien Galy, a senior macro strategist at Nordea Investment Funds SA. “It is taking the market more time to price in these shocks than I had expected, and the market is far more realistic as the buy-on-dip mentality fades with the fear of inflation.”
Treasury Secretary Janet Yellen said that the US government will run out of money to pay its bills sometime in October without action on the debt ceiling, warning of “economic catastrophe” unless lawmakers take the necessary steps.
The Stoxx Europe 600 falls 1.6% as of 9:09 am London time and futures on the S&P 500 also drop 1.1%.
While futures on the Nasdaq 100 fall 0.9%, futures on the Dow Jones Industrial Average also drop 1.3%. The MSCI Asia Pacific Index falls 1% and the MSCI Emerging Markets Index also slumps by 1.3%.
The Bloomberg Dollar Spot Index rises 0.2% and the euro falls 0.1% to $1.1710.
While the Japanese yen climbs 0.2% to 109.73 per dollar, the offshore yuan falls 0.2% to 6.4843 per dollar and the British pound falls 0.5%
to $1.3676.