Stocks fall on cautious start to Fed’s key week: Markets fold

Stocks fall on cautious start to Fed’s key week: Markets fold

(Bloomberg) — Stocks fell with U.S. stock futures off to a subdued start Monday, as investors await a slew of interest rate decisions in the coming days and after global stocks had their worst week since arriving to this year’s low in June.

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S&P 500 futures fell 1% along with the Nasdaq 100, pointing to extended declines for the benchmark after its sharp weekly decline since June 17. The Stoxx Europe 600 Index headed to its lowest close since July 5, wiping out most of its summer rally.

Market weakness reflects expectations of an outsized rate hike by the Federal Reserve on Wednesday and worries that its aggressive tightening to suppress inflation will trigger a recession.

Investors also face potential volatility from policy decisions this week from the Bank of England, the Bank of Japan and a host of other central banks. The British pound sank to its weakest level against the dollar since 1985 on Friday and the yen remains under pressure, although it has retreated from a key level of 145 against the greenback. A dollar counter rose.

“Aggressive policy tightening over the next 4-6 months, not only in the US but globally, raises the risk of a recession next year,” said Maria Landeborn, senior strategist at Danske Bank A/S. “We expect uncertainty to remain high around inflation, interest rates and the overall economy, which is negative for market sentiment and risk assets.”

A slide in global stocks deepened after warmer-than-expected inflation data prompted traders to increase bets on rate hikes. The swaps are still priced up 75 basis points when the Fed meets — with some bets leaning toward the full point.

Top Wall Street strategists see growing risks to earnings and valuations of U.S. stocks. Both Michael J. Wilson of Morgan Stanley and David J. Kostin of Goldman Sachs Group Inc. they said headwinds to profitability are building, highlighting tighter monetary policy and pressure on the company’s margins.

Read more: Wall Street strategists see increasing pressure on US earnings

Traders briefly appreciated the Fed’s key policy rate, which peaked at 4.5 percent in March last week, as the central bank steps up its effort to contain inflation. That expected peak is up a full percentage point since the Fed’s last policy meeting in July.

Activity was dampened by a holiday in Japan and the United Kingdom observing a day of mourning for Queen Elizabeth II, with no trading in cash bonds during the Asian and European sessions.

Cryptocurrencies were also weighed down by pre-Fed jitters. Bitcoin fell below $19,000 while Ether extended its decline after its blockchain upgrade last week.

In early U.S. trading, major tech stocks including Apple Inc. and Microsoft Corp., retreated.

Some key events this week:

  • World Bank President David Malpas speaks in New York on Monday.

  • European Central Bank Vice President Luis de Guido speaks in Madrid on Monday

  • Key lending rates in China, Tuesday.

  • Sweden interest rate decision, Tuesday.

  • Federal Reserve rate decision, Wednesday.

  • CEOs of major banks, including Jamie Dimon of JPMorgan Chase and Co. and Brian Moynihan of Bank of America Corp. testify before the US House Financial Services Committee on Wednesday.

  • Reserve Bank of Australia Deputy Governor Michele Bullock speaks at a Bloomberg event in Sydney on Wednesday.

  • Central bank policy meetings in Japan, UK, Indonesia, South Africa, Turkey and Switzerland, Thursday.

  • US Treasury Secretary Janet Yellen speaks in Washington on Thursday.

  • Eurozone PMI, Friday.

Some of the main movements in the markets:

inventories

  • S&P 500 futures were down 1% at 6:05 a.m. New York time

  • Nasdaq 100 futures fell 1.1%

  • Dow Jones Industrial Average futures fell 1%

  • Stoxx Europe 600 down 1%

  • The MSCI World Index fell 0.4%

currency

  • Bloomberg Dollar Spot index rose 0.4%

  • The euro fell 0.4% to $0.9976

  • The British pound fell 0.5% to $1.1360

  • The Japanese yen fell 0.4% to 143.47 per dollar

Bindings

Goods

  • West Texas Intermediate crude fell 1.9% to $83.53 a barrel

  • Gold futures fell 0.7% to $1,672.20 an ounce

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