US equity-index futures and European stocks declined after stubborn US inflation bolstered the case for more aggressive monetary tightening by the Federal Reserve. Sinking cryptocurrencies exacerbated risk aversion.
Contracts on the S&P 500 and Nasdaq 100 indexes slid at least 0.7% after the S&P 500 Wednesday hit the lowest level since March 2021. Europe’s Stoxx 600 gauge fell more than 2%, led by raw-material companies. The dollar rallied for a sixth day and Treasuries gained as investors sought the safety of havens. Bitcoin sank 10%.
Wednesday’s hotter-than-expected US inflation reading has revived concerns of a 75 basis-point rate increase by the Fed, rather than the 50 basis-point pace that markets have come to grips with. Worries about the impact of rising rates on economic growth, combined with the war in Ukraine and slowing Chinese demand amid Covid lockdowns, are battering risk assets.
“Until we get a meaningful move lower in inflation, not only one print, but a consistent two, three, four prints moving in the right direction, this market may remain range bound,” Mona Mahajan, senior investment strategist at Edward Jones & Co., said on Bloomberg Television.
The dollar rose on Thursday against all of its Group of 10 peers, except the Japanese yen. The gains took Bloomberg’s gauge of the greenback’s strength to the highest level since May 2020. Meanwhile, Treasuries rallied across the curve, with the 10-year rate shedding 10 basis points.
MSCI Inc.’s index of world stocks slumped to the lowest level since November 2020 and is heading for a sixth week of losses, the longest since 2008.
“We’re seeing the beginning of the capitulation and the great reset, if you want, in pricing,” Virginie Maisonneuve, global chief investment officer for equity at Allianz Global Investors UK, said on Bloomberg Television. “Right now the big question is peak inflation.”
Digital tokens plunged anew, victims of ebbing liquidity and evaporating demand for speculative assets. Bitcoin is down more than 20% this week.
The offshore yuan touched a fresh low after a Chinese central bank official said loan rates have been guided to decline. The People’s Bank of China is making stabilizing economic growth a top priority and will step up support for weak sectors, Deputy Governor Chen Yulu said. Covid outbreaks there are sapping growth and snarling global supply chains.
European natural gas prices jumped on worries over supplies from Russia transiting Ukraine. Oil, meanwhile, dropped amid wider growth concerns.
Here are key events to watch this week:
- San Francisco Fed President Mary Daly speaks, Thursday
- US PPI, initial jobless claims, Thursday
- University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
- The Stoxx Europe 600 fell 2.4% as of 8:22 a.m. London time
- Futures on the S&P 500 fell 0.7%
- Futures on the Nasdaq 100 fell 1%
- Futures on the Dow Jones Industrial Average fell 0.6%
- The MSCI Asia Pacific Index fell 1.8%
- The MSCI Emerging Markets Index fell 2.3%
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.6% to $1.0450
- The Japanese yen rose 0.8% to 128.98 per dollar
- The offshore yuan fell 0.7% to 6.8087 per dollar
- The British pound fell 0.5% to $1.2190
- The yield on 10-year Treasuries declined 10 basis points to 2.82%
- Germany’s 10-year yield declined 11 basis points to 0.88%
- Britain’s 10-year yield declined nine basis points to 1.73%
- Brent crude fell 2.3% to $105.01 a barrel
- Spot gold fell 0.3% to $1,847.18 an ounce