Bloomberg — Stocks in Asia struggled to make headway and US equity futures fell as negative sentiment persisted in markets amid fear that global central banks will keep hiking rates until inflation is tamed, raising the risk of a recession.
Equities dropped in Japan and Australia. Trading in Asia may be muted by a holiday in Sydney and South Korea on Monday and the week-long closure of Chinese markets for Golden Week.
Confidence among Japan’s large manufacturers unexpectedly worsened for three straight quarters following the yen’s rapid depreciation and deterioration in the global economic outlook, adding another headwind for local equities.
The week’s cautious start comes after US stocks posted their third straight quarter of losses for the first time since 2009. Risk assets have been in a tailspin since the Federal Reserve delivered a third jumbo hike last month and officials repeatedly warned of more pain to come.
“Risk off seen from multiple forces heading into the new month or quarter as corporate earnings misses continue to raise the threat of an ugly earnings season ahead,” a group of Saxo Capital Markets analysts wrote in a note.
UK markets added to the stress after the government unveiled sweeping tax cuts that threatened to exacerbate inflationary pressures, and the Bank of England attempted to manage the mayhem that ensued. While Prime Minister Liz Truss put the blame for the controversial decision to remove the highest rate of UK income tax on Chancellor of the Exchequer Kwasi Kwarteng, the government intends to follow through with the plan despite the market chaos.
The pound fell for the first time in five days.
“Last week’s developments reinforced our expectation that we will see further tightening in financial conditions, but also illustrated the short-term two-way volatility, which will likely accompany it,” Citigroup Inc. Global Head of Currency Analysis Ebrahim Rahbari wrote in a note to clients. With the three main forces at play -- rising real rates, volatility and the US dollar -- “we therefore remain very bearish regarding the outlook for global risk assets,” he wrote.
Investors are now awaiting jobs data this week for further clues about the Fed’s rate-hike trajectory. Upcoming inflation and GDP readings will also provide details on whether price pressures are easing meaningfully. Rate decisions in Australia and New Zealand are also expected, with the antipodean markets considered bellwethers for developed market peers.
Geopolitical tensions also continue to simmer as Russian forces faced a new operational defeat -- this time in a strategic eastern Ukrainian town -- to cast further doubt on the “forever” annexation of four occupied regions by President Vladimir Putin that he vowed was irreversible. President Joe Biden declared that a massive leak from the Nord Stream gas pipeline system in the Baltic Sea was an intentional act.
Oil surged after delegates said OPEC+ was considering cutting output by more than 1 million barrels a day when the group meets this week to stem a slide in prices.
Key events this week:
- Eurozone manufacturing PMIs, Monday
- US construction spending, ISM Manufacturing, light vehicle sales, Monday
- Fed’s Raphael Bostic, John Williams speak at events, Monday
- Euro-area and EU finance ministers meet, Monday
- Eurozone PPI, Tuesday
- US factory orders, durable goods, Tuesday
- Fed’s John Williams, Lorie Logan, Loretta Mester, Mary Daly speak at events, Tuesday
- Eurozone services PMIs, Wednesday
- OPEC+ meeting begins, Wednesday
- Fed’s Raphael Bostic speaks, Wednesday
- Eurozone retail sales, Thursday
- US initial jobless claims, Thursday
- Fed’s Charles Evans, Lisa Cook, Loretta Mester speak at events, Thursday
- US unemployment, wholesale inventories, nonfarm payrolls, Friday
- BOE Deputy Governor Dave Ramsden speaks at event, Friday
- Fed’s John Williams speaks at event, Friday
Key market moves:
Stocks
- S&P 500 futures lost 0.7% 9:09 a.m. in Tokyo. S&P 500 Index fell 1.5% on Friday
- Nasdaq 100 futures dropped 1.1%. Nasdaq 100 Index slid 1.7% on Friday
- Japan’s Topix index decreased 0.9%
- S&P/ASX 200 Index slid 0.7%
- Hong Kong’s Hang Seng futures fell 0.1%
Currencies
- The Bloomberg Dollar Spot Index gained 0.1%
- The euro fell 0.1% to 0.9787 per dollar
- The Japanese yen was down 0.1% to 144.83 per dollar
- The offshore yuan rose 0.1% to 7.1410 per dollar
Cryptocurrencies
Bonds
- The yield on 10-year Treasuries decreased two basis points to 3.80%
Commodities
- West Texas Intermediate rose 2.7% to $81.63 a barrel
- Gold climbed 0.2% to $1,664.51 per ounce
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