US Stocks, Futures Fall as Fed Takes Tax Outlook: Markets Fold

(Bloomberg) — Stocks fell along with U.S. stock futures on Monday amid escalating threats to global economic growth, particularly the Federal Reserve’s commitment to tighter monetary policy to curb inflation.

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Losses for stock markets in Japan, Australia and South Korea were around 1 percent after the worst week for global shares since late June.

The S&P 500, Nasdaq 100 and European contracts suffered losses and the dollar index was at a more than one-month high, further signs of investor caution.

Government bonds in Australia and New Zealand fell and the yield on the US 10-year note climbed to around 2.99%, extending the selloff from Friday.

Global stocks’ rally from June’s bear market lows has begun to falter, weighed down by repeated warnings from the Fed that interest rates are rising. Worrying global economic developments, including power shortages in a Chinese industrial heartland, are also hanging over investors.

Key to markets this week is the Fed conference in Jackson Hole, Wyoming. The recent rally in stocks has eased economic conditions, making it harder to tackle inflation.

The conference gives Fed Chairman Jerome Powell a platform to reset market expectations for a shift to slower rate hikes. The latest bets have helped fuel the recent rally in stocks, but are vulnerable to the possibility of persistent upward pressure on prices even as economic growth falters.

“Stay Hawk”

“It is likely that central bankers, including Fed Chairman Powell, will remain hawkish on inflation, albeit with some caution given the looming economic recession,” wrote Shane Oliver, chief investment strategist at AMP Services Ltd. Note.

In China, Bloomberg Economics expects key lending rates to cut by 10 basis points later on Monday as banks follow the People’s Bank of China’s decision to cut a key rate.

The world’s second-largest economy faces mobility restrictions amid rising Covid cases and ongoing property woes, in addition to a power crisis in Sichuan province, a key manufacturing hub.

The outlook for Chinese demand weighed on oil, which sank below $90 a barrel. Traders are eyeing Iran nuclear talks that could lead to more supplies.

What to watch this week:

  • China’s key lending rates on Monday

  • US New Home Sales, S&P Global PMI, Tuesday

  • The Fed’s Neel Kashkari speaks at the Q&A session on Tuesday

  • US Durable Goods, MBA Mortgage Applications, Pending Home Sales, Wed

  • US GDP, initial jobless claims. Thursday

  • Annual Fed Policy Symposium in Jackson Hole, Wyoming, Thursday

  • Minutes of the ECB July, Thursday

  • Fed Chairman Powell speaks in Jackson Hole on Friday

  • US consumer income, PCE deflator, Friday

Some of the main movements in the markets:

inventories

  • S&P 500 futures lost 0.6% at 9:26 a.m. in Tokyo. S&P 500 down 1.3%

  • Nasdaq 100 futures fell 0.7%. Nasdaq 100 down 2%

  • Japan’s Topix index fell 0.7%

  • Australia’s S&P/ASX 200 was 1.1% lower

  • South Korea’s Kospi fell 1.2%

  • Hang Seng index futures were down 0.9 percent earlier

currency

  • The Bloomberg Dollar Spot Index added 0.2%

  • The euro was at $1.0027, down 0.1%

  • The Japanese yen was at 137.24 yen per dollar, down 0.2%.

  • The offshore yuan was at 6.8440 per dollar, down 0.1%

Bindings

Goods

  • West Texas Intermediate crude fell 1.2% to $89.70 a barrel

  • Gold was at $1,745.26 an ounce, down 0.1%

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