Stocks and US index futures declined as investors reassessed valuations in the wake of a spike in Treasury yields. Oil headed for multiyear highs amid a global supply crunch.
Contracts on the Nasdaq 100 Index plunged 1.4%, signaling the technology-heavy gauge may extend Monday’s losses. S&P 500 futures fell 0.8%. The five-year Treasury yield rose above 1.03% and the 10-year yield reached 1.55% as investors priced in the start of Federal Reserve tapering. Brent crude futures topped $80 per barrel and West Texas Intermediate extended its rally to a sixth day.
Federal Reserve officials have communicated increasingly hawkish signals in recent days as global supply-chain bottlenecks threaten to keep inflation elevated. China’s growth slowdown and a debt crisis in the nation’s property market have also fueled risk-off sentiment. All that has made investors switch out of expensive investments, such as technology stocks.
“Central bankers have set out how they want to normalize monetary policy for some time,” Chris Iggo, chief investment officer for core investments at AXA Investment Managers, said in a note. “That process could start soon. The realisation of this has the potential to provoke some volatility in rates and equities.”
Chair Jerome Powell said Monday the inflation test for scaling back the Fed’s bond-buying has been met, while the employment test “is all but met.” Fed Governor Lael Brainard said the labor market may soon meet her yardstick for scaling back asset purchases, while New York Fed President John Williams noted that moderating bond-buying may soon be warranted.
Brent crude futures jumped to a three-year high on Tuesday, while WTI contracts traded above $76. A flurry of bullish price predictions from banks and traders, gains in natural gas, and speculation the energy industry isn’t investing enough in fossil fuels signaled a global crunch. Goldman Sachs Group Inc. said Brent could hit $90 by year-end as the market was in a bigger deficit than many realised.
The dollar jumped to a five-week high, posting gains against all of its Group-of-10 peers. While concerns around the coronavirus may have eased, uncertainty over global growth and monetary policy have given dollar bulls more ammunition.
European stocks fell as investors switched away from pricier growth stocks. Technology shares led the losses, while energy companies limited the benchmark Stoxx 600 gauge’s slide.
Hong Kong equities advanced, defying Asian losses, after China’s central bank said it will work to safeguard the “healthy” development of the property market amid the China Evergrande Group crisis.
The gloomy mood spread to the cryptocurrencies market, with Bitcoin falling for a second day and trading around $42 000 apiece.
Here are some events to watch this week:
- Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen to testify at a Senate Banking Committee hearing Tuesday
- European Central Bank President Christine Lagarde speaks Tuesday at the ECB Forum on Central Banking
- Japan’s ruling party votes to elect leader, Wednesday
- Central bank chiefs Andrew Bailey (BOE), Haruhiko Kuroda (BOJ), Christine Lagarde (ECB) and Jerome Powell (Fed) participate in an ECB Forum panel, Wednesday
- House Financial Services Committee hearing on the Fed, Treasury’s pandemic response, Thursday
- China Caixin manufacturing PMI, non-manufacturing PMI, Thursday
- Univ. of Michigan sentiment, ISM manufacturing, US construction spending, spending/personal income Friday
Some of the main moves in markets:
- The Stoxx Europe 600 fell 1.3% as of 9:20 a.m. London time
- Futures on the S&P 500 fell 0.8%
- Futures on the Nasdaq 100 fell 1.4%
- Futures on the Dow Jones Industrial Average fell 0.4%
- The MSCI Asia Pacific Index fell 0.4%
- The MSCI Emerging Markets Index fell 0.1%
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.1% to $1.1681
- The Japanese yen fell 0.3% to 111.28 per dollar
- The offshore yuan was little changed at 6.4608 per dollar
- The British pound fell 0.2% to $1.3672
- The yield on 10-year Treasuries advanced six basis points to 1.55%
- Germany’s 10-year yield advanced four basis points to -0.18%
- Britain’s 10-year yield advanced five basis points to 1.00%
- Brent crude rose 0.9% to $80.24 a barrel
- Spot gold fell 0.5% to $1 741.34 an ounce