US Equity Futures Fall With Oil as Rally Wobbles: Markets Wrap

(Bloomberg) -- US futures dipped with oil and the dollar as investors assessed recession risks against remarks from central bankers that higher interest rates are needed to bring inflation under control.

Contracts on both the Nasdaq 100 and S&P 500 were lower following the best month for US stocks since November 2020. The Stoxx 600 Index rose 0.2%, led by banks, as HSBC Holdings Plc posted better-than-estimated profits. 

The dollar fell against all of its Group of 10 peers ahead of data later Monday expected to show a slowdown in US manufacturing for July. 

Oil dropped after poor Chinese economic data added to concerns that a global slowdown may sap demand. West Texas Intermediate dropped below $97 a barrel after sinking almost 7% in July in the first back-to-back monthly loss since late 2020.

Traders are speculating the Federal Reserve will tone down its anti-inflation campaign and opt for a slower path of rate hikes after data showed the US economy shrank a second quarter. While that sentiment drove July’s market turnaround after historic first-half losses, over the weekend some Fed officials sought to reinforce the message that higher rates are needed to stamp out price pressures and downplayed recession risks. 

“The fact that a very weak run of data is seen as equity bullish just purely on the basis of lower rates speaks to just how utterly dominant Fed policy has become in driving investor behavior,” said James Athey, investment director at abrdn. “Unless the Fed pulls off a miracle I am afraid the bear market is absolutely not over.”

Treasury yields steadied with the 10-year rate at 2.66%, well down from June’s peak near 3.50%. Italian bonds rallied, sending the 10-year yield below 3% for the first time since May, as investors bet that a new government will stick to commitments needed to unlock European Union funds. 

Bitcoin declined after reaching the highest levels since mid-June on Saturday amid optimism that the market may have recovered from its worst levels.

Investors are also monitoring US House Speaker Nancy Pelosi’s trip to Asia. A statement from her office skipped any mention of a possible stopover in Taiwan. A visit may stoke US-China tension over the island.

What to watch this week:

• Airbnb, Alibaba and BP are among earnings reports
• US construction spending, ISM manufacturing, Monday
• Reserve Bank of Australia rate decision, Tuesday
• US JOLTS job openings, Tuesday
• Chicago Fed President Charles Evans, St. Louis Fed President James Bullard due to speak at separate events, Tuesday
• OPEC+ meeting on output, Wednesday
• US factory orders, durable goods, ISM services, Wednesday
• BOE rate decision, Thursday
• US initial jobless claims, trade, Thursday
• Cleveland Fed President Loretta Mester due to speak, Thursday
• US employment report for July, Friday

Some of the main moves in markets:

Stocks

• Futures on the S&P 500 fell 0.2% as of 6:49 a.m. New York time
• Futures on the Nasdaq 100 fell 0.3%
• Futures on the Dow Jones Industrial Average were little changed
• The Stoxx Europe 600 rose 0.2%
• The MSCI World index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index fell 0.4%
• The euro rose 0.3% to $1.0251
• The British pound rose 0.6% to $1.2243
• The Japanese yen rose 0.8% to 132.14 per dollar

Bonds

• The yield on 10-year Treasuries advanced one basis point to 2.66%
• Germany’s 10-year yield advanced three basis points to 0.84%
• Britain’s 10-year yield advanced three basis points to 1.89%

Commodities

• West Texas Intermediate crude fell 1.7% to $96.93 a barrel
• Gold futures rose 0.4% to $1,789.30 an ounce

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