Stocks Fall as Two-Year U.S. Yield Scales 2007 High: Markets Fold

(Bloomberg) — U.S. stock futures fell along with Asian shares on Monday and the yield on the two-year note hit its highest level since 2007 after Federal Reserve Chairman Jerome Powell signaled higher interest rates.

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Contracts for the tech-heavy Nasdaq 100 and S&P 500 fell 1 percent or more, while stocks in Japan, South Korea and Australia fell about 2 percent.

The dollar was pushed to a more than one-month high with commodity-linked currencies, the yen, the pound and the offshore yuan all under some pressure.

Bonds sold off amid a deeper inversion in the US yield curve underscoring expectations of a recession under tighter monetary policy.

Powell in his speech last week at the Fed’s Jackson Hole symposium pointed to the possible need for tight monetary policy for some time to contain high inflation and warned against premature easing of monetary conditions. He also warned of potential financial pain for households and businesses.

Those comments contradicted market bets for reductions in borrowing costs next year as growth slows. The locus for much of the investor angst is in the stock market, further negating the recovery in global stocks from bear market lows in mid-June.

Powell noted that “once they get to whatever the final hike is, they’re going to be there for a while,” Charles Schwab & Co. said. Chief Investment Strategist Liz Ann Sonders on Bloomberg TV. “The market had trouble digesting that.”

Bitcoin broke below the $20,000 level, which some see as an indicator of a deeper slide in investment sentiment. Gold faltered but crude oil made modest gains.

Hong Kong stock futures rose earlier after an index of U.S.-listed Chinese stocks weathered much of Friday’s stock market rout.

That may reflect optimism for a tentative deal between Beijing and Washington to ease a standoff over a review of controls on Chinese companies. A deal is needed to prevent about 200 Chinese companies from being delisted from US exchanges.

Here are some key events to watch this week:

  • US Conf. Consumer confidence on board, Tuesday

  • New York Fed President John Williams speaks to the Wall Street Journal about the US economic outlook on Tuesday

  • ECB Governing Council members Robert Holzmann, Yiannis Stournaras, Madis Muller and Pierre Wunsch talk about ‘Inflation: Can Central Banks Cope?’ at the event Tuesday through September 2

  • China PMI, Wednesday

  • Eurozone CPI, Wednesday

  • Russia’s Gazprom is to halt gas flows through its main Nord Stream pipeline for three days of maintenance on Wednesday

  • Cleveland Fed President Loretta Mester discusses the outlook for the economy and monetary policy at an event on Wednesday

  • China Caixin manufacturing PMI, Thursday

  • US non-farm payrolls, Friday

  • Voting for the UK leadership closes on Friday. The winner was announced on September 5th

Some of the main movements in the markets:

inventories

  • S&P 500 futures were down 1% at 9:37 a.m. in Tokyo. S&P 500 down 3.4%

  • Nasdaq 100 futures fell 1.4%. The Nasdaq 100 fell 4.1%

  • Japan’s Topix index fell 2%

  • Australia’s S&P/ASX 200 lost 1.7%

  • South Korea’s Kospi fell 2.3%

currency

  • The Bloomberg Dollar Spot index rose 0.3%

  • The euro was at $0.9937, down 0.3%

  • The Japanese yen was at 138.27 yen per dollar, down 0.5%

  • The offshore yuan was at 6.9138 per dollar, down 0.3%

Bindings

Goods

  • West Texas Intermediate crude was at $93.30 a barrel, up 0.3%.

  • Gold was at $1,735.25 an ounce, down 0.2%

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