US futures wilt against Federal Reserve caution, rising yields

Bloomberg

US stock futures declined on Monday and Treasury yields rose as a cautious tone from a Fed speaker tempered some of the ebullience that inflation may have peaked.
Contracts on the tech-heavy Nasdaq 100, typically more sensitive to interest rates, slipped 0.7% while those on the S&P 500 dropped 0.4%. Losses in New York premarket trading were concentrated in tech names, with Tesla Inc., chip firms Nvidia Corp., Intel Corp and Micron Technology Inc. shedding between 1% and 2%. Europe’s Stoxx 600 benchmark rises to a near three-month high, and Chinese shares rallied for a second day on hopes the country’s Covid Zero isolation would soon end.
The dollar turned higher after weekend comments from Federal Reserve Governor Christopher Waller that policymakers had “a ways to go” before ending interest-rate hikes. His comments also helped lift 10-year Treasury yields more than 8 basis points.
While signs of cooling in US inflation and the prospects of a dovish tilt by the Fed had propelled the S&P 500 to its best week since June, some of the world’s largest money managers are clinging to risk-off positioning against the threat of entrenched inflation. JPMorgan Asset Management has a record allocation in cash in at least one of its strategies while a hedge fund solutions team at UBS Group AG is staying defensive.
“Markets have been reading too much into one data print, US inflation has slowed but it’s not slow,” said Salman Ahmed, chief investment strategist at Fidelity International. “The Fed will need more data to reassess the end point for rates.”
The University of Michigan’s preliminary November survey on Friday showed US consumer inflation expectations increased in the short and long run, while sentiment retreated. The dollar climbed 0.3% against a basket of currencies after losing almost 4% this month.
To be sure, while Waller said the hiking cycle would continue for some time, he noted that the Fed could start considering a downshift to a 50 basis-point move at the next meeting in December or the one after that.
Meanwhile, Chinese developers’ stocks and bonds soared, driven by Beijing’s property rescue measures and as easing Covid controls raise hopes that the worst may be over. Real estate firm Country Garden rose as much as 46% in Hong Kong, while the offshore-traded yuan strengthened 1% versus the dollar at one point.
“There are still a lot of risks but it seems like some of the tail risk has been clipped,” Stephen Chang, managing director and portfolio manager at Pimco Asia Ltd., said in an interview with Bloomberg TV.
Investors will also keep a wary eye on the Group of 20 summit in Indonesia, where US President Joe Biden and Chinese leader Xi Jinping are meeting. Biden’s hand has been strengthened by the Democrats defying the political forecasts and historical trends to keep control of the Senate.
Cryptocurrencies fluctuated while the sector remained under pressure amid FTX’s deepening woes.
A swift plunge in the value of FTX’s key crypto assets and unauthorised withdrawals of funds after it filed for bankruptcy suggest customers have little chance of recovering much of their deposits.
Oil dipped after a two-day rally, as a stronger dollar offset optimism around the outlook for improved Chinese demand.
The Stoxx Europe 600 rises 0.2% as of 10:24 am London time and futures on the S&P 500 drop 0.4%.
While futures on the Nasdaq 100 fell 0.7%, futures on the Dow Jones Industrial Average falls 0.3%..
While the MSCI Asia Pacific Index falls 0.3%, the MSCI Emerging Markets Index rise as much as 0.4%
The Bloomberg Dollar Spot Index rises 0.5% and the euro fell 0.4% to $1.0301.
While the Japanese yen fell 1.1% to 140.31 per dollar, the offshore yuan rose 0.4% to 7.0659 per dollar. The British pound fell 0.5% to $1.1776.