US Futures, Oil Drop as Fed Outlook Takes a Toll: Markets Wrap

Bloomberg — Stocks in Asia may struggle Monday on escalating threats to global economic growth, in particular the Federal Reserve’s commitment to tighter monetary settings to quell inflation.

Futures pointed to soft starts for bourses in Japan, Australia and Hong Kong following the worst week for global shares since late June.

US equity futures retreated, including a 0.5% slide in contracts on the tech-heavy Nasdaq 100. A gauge of the dollar’s strength held around the highest level in over a month.

A selloff in Treasuries on Friday set the tone for early fixed-income action in the Asia-Pacific region as yields jumped in Australia and New Zealand.

Oil sank below $90 a barrel, hurt by worries about the outlook for demand and as traders monitor Iran nuclear talks that could lead to more supplies.

A jump in global shares from June’s bear-market lows has begun to cool, weighed down by repeated Fed warnings that interest rates are going higher. Troubling global economic developments, lately including power shortages in a Chinese industrial heartland, are also hanging over investors.

Key for markets this week is the Fed’s symposium at Jackson Hole, Wyoming. The recent stock bounce has loosened financial conditions, which makes it harder to tackle inflation.

The symposium gives Fed Chair Jerome Powell a platform to reset the market’s expectations for a pivot to slower rate hikes. The latter bets have helped to drive the recent equity rebound.

‘Remain Hawkish’

“It is likely central bankers, including Fed Chair Powell, will remain hawkish in dealing with inflation albeit with a bit of caution creeping in given the emerging economic downturn,” Shane Oliver, head of investment strategy at AMP Services Ltd., wrote in a note.

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

The world’s second-largest economy faces mobility curbs amid rising Covid cases and continuing property-sector woes, aside from a power crunch in Sichuan province, a key manufacturing hub.

What to watch this week:

• China loan prime rates, Monday
• US new home sales, S&P Global PMIs, Tuesday
• Fed’s Neel Kashkari speaks at Q&A session, Tuesday
• US durable goods, MBA mortgage applications, pending home sales, Wednesday
• US GDP, initial jobless claims. Thursday
• Fed annual policy symposium in Jackson Hole, Wyoming, Thursday
• ECB’s July minutes, Thursday
• Fed Chair Powell speaks at Jackson Hole, Friday
• US consumer income, PCE deflator, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures lost 0.3% as of 7:52 a.m. in Tokyo. The S&P 500 fell 1.3%
• Nasdaq 100 futures shed 0.5%. The Nasdaq 100 fell 2%
• Nikkei 225 futures fell 0.5%
• Australia’s S&P/ASX 200 Index futures lost 0.4%
• Hang Seng Index futures fell 0.9%

Currencies

• The Bloomberg Dollar Spot Index was steady
• The euro was at $1.0037
• The Japanese yen was at 136.99 per dollar
• The offshore yuan was at 6.8338 per dollar

Bonds

• The yield on 10-year Treasuries advanced nine basis points to 2.97% Friday
• Australia’s 10-year yield rose eight basis points to 3.49%

Commodities

• West Texas Intermediate crude dropped 1.3% to $89.62 a barrel
• Gold was at $1,747.75 an ounce