Stocks in Europe plunged and U.S. equity futures declined at the start of a week abounding with risks including spillover from China Evergrande Group’s woes, falling commodity prices and the Federal Reserve policy meeting.
The Stoxx Europe 600 index dropped 1.4% at the open, with raw materials leading the decline 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 rose before the Fed meeting, where policy makers are expected to start laying the groundwork for paring stimulus. Treasury yields ticked lower.
U.S. 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 on growing concern about China’s crackdown on the real-estate sector, with traders are also tracking the risk of contagion from the debt crisis at developer Evergrande, which was set to close at a record-low market value. 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 U.S. debt ceiling. Investors were already fretting over a slowing global recovery from the pandemic and inflation stoked by commodity prices.
“We have inflation building in the system, wages are rising, supply chains firmly driving prices, and with so many central banks having to make rate decisions we think it’s a bit jittery,” Knights of Columbus Asset Advisors Chief Investment Officer Tony Minopoli said on Bloomberg Television.
Treasury Secretary Janet Yellen said the U.S. 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.
Here are key events to watch this week:
- Canada federal election, Monday
- Bank of Japan rate decision, Wednesday
- Federal Reserve rate decision, Wednesday
- Bank of England rate decision, Thursday
- Fed Chair Jerome Powell, Fed Governor Michelle Bowman and Vice Chairman Richard Clarida discuss pandemic recovery, Friday
Some of the main moves in markets:
- The Stoxx Europe 600 fell 1.4% as of 8:14 a.m. London time
- Futures on the S&P 500 fell 1%
- Futures on the Nasdaq 100 fell 0.8%
- Futures on the Dow Jones Industrial Average fell 1.3%
- The MSCI Asia Pacific Index fell 1%
- The MSCI Emerging Markets Index fell 1.3%
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.1% to $1.1712
- The Japanese yen rose 0.2% to 109.76 per dollar
- The offshore yuan fell 0.2% to 6.4839 per dollar
- The British pound fell 0.5% to $1.3676
- The yield on 10-year Treasuries declined one basis point to 1.35%
- Germany’s 10-year yield declined one basis point to -0.29%
- Britain’s 10-year yield declined two basis points to 0.83%
- Brent crude fell 0.9% to $74.67 a barrel
- Spot gold was little changed
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