US futures, stocks decline as Fed outlook takes toll

Bloomberg

Stocks in Europe retreated on Monday along with US equity futures as the Federal Reserve’s commitment to tighter monetary settings and worries about the effect on economic growth weigh on investor sentiment.
Futures on the S&P 500 and Nasdaq 100 fall more than 1% each. The 10-year Treasury yield was little changed while two-year yields rise about five basis points, deepening the yield-curve inversion that’s seen as a harbinger of a recession. The dollar spot index climbed to a five-week high.
The Stoxx Europe 600 index dropped to its lowest level in more than three weeks, with carmakers and the tech sector leading a broad-based decline. MSCI Inc.’s Asia-Pacific share index fell for a third day with losses evident in most major markets except for some gains in China, where a move by banks to trim lending rates aided property developers.
A jump in global shares from June’s bear-market lows is fizzling after repeated Fed warnings that interest rates are going higher, stoking concerns about a US recession. Investors are also waking up to the looming acceleration of the Fed’s balance-sheet reduction. So-called quantitative tightening kicks into top gear next month, and will add to pressure on riskier assets which have benefited from ample liquidity.
The latest MLIV Pulse survey suggests stocks and bonds are set to tumble once more even though inflation has likely peaked: some 68% of respondents see the most destabilising era of price pressures in decades eroding corporate margins and sending equities lower.
“It is likely central bankers, including Fed Chair Jerome 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.
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 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.
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 Chinese demand outlook is weighing on oil, which sank below $90 a barrel in New York. Traders are monitoring Iran nuclear talks that could lead to more supplies.
The Stoxx Europe 600 falls 1.2% as of 10:31 am London time and futures on the S&P 500 also drop 1.2%.
While futures on the Nasdaq 100 sink 1.6%, futures on the Dow Jones Industrial Average also fall 1%.
The MSCI Asia Pacific Index falls 0.6% and the MSCI Emerging Markets Index also slumps by as much as 1%.
The Bloomberg Dollar Spot Index rises 0.2% and the euro falls 0.3% to $1.0008.