Recession Worries Dent Stocks, Weigh on US Futures: Markets Wrap

(Bloomberg) -- Stocks slipped and US equity futures wavered Monday, sapped by a dimming economic outlook that’s also cooling expectations for peak interest rates and supporting sovereign bonds.

Declines in Japan as well as in Chinese technology shares dragged down Asian equities. S&P 500 and Nasdaq 100 futures struggled to stay out of the red, while European contracts shed more than 0.5%.

China’s property shares bucked the prevailing trend, pushing higher amid a report that officials plan a fund to support struggling developers. The nation’s real-estate crisis is among the major fault-lines for the world economy.

Australian debt jumped in the slipstream of a Treasuries rally Friday. The US 10-year yield was at about 2.78%, paring a sliver of last week’s drop. 

Investors have shifted to betting that ebbing economic expansion, and possibly even a recession, will moderate high inflation and soften the current cycle of monetary tightening that’s roiled global markets in 2022.

A dollar gauge fluctuated, oil slid to around $94 a barrel and Bitcoin weakened below $22,000, reflecting the cautious mood across assets.

The Federal Reserve policy decision this week, along with earnings from the likes of Google’s Alphabet Inc. and technology titan Apple Inc., will help to clarify the outlook for a one-month-old rebound in stocks from 2022’s selloff.

“We still see further downside for risky assets as recession fears accumulate and central banks remain committed to fighting inflation at the expense of growth,” wrote Eric Robertsen, chief strategist at Standard Chartered Bank Plc.

Swaps tied to Fed meeting outcome dates indicate another 75 basis-point interest-rate hike Wednesday. Expectations for the peak in the policy rate have moderated to about 3.4% roughly by year-end. Cuts are then expected in 2023.

Bear-Market Blues

“We don’t think that this bear market is going to end until there’s some evidence of nearing a bottoming of economic data or a pivot by the Fed toward a more dovish stance,” Nadia Lovell, UBS Global Wealth Management senior US equity strategist, said on Bloomberg Radio.

Retreating business activity and mixed earnings performance from major firms left US shares in the red on Friday. Treasury Secretary Janet Yellen said she doesn’t see any sign that the US is in a broad recession. Former Treasury Secretary Lawrence Summers said a soft landing is highly unlikely.

Elsewhere, wheat climbed as commodity markets evaluated a Russian missile strike on Odesa’s sea port that threatened to test a fledgling agreement to unblock Ukrainian grain exports from the Black Sea.

Here are some key events to watch this week:

• Alphabet, Apple, Amazon, Microsoft, Meta earnings due this week
• Bank of Japan minutes, Tuesday
• IMF’s world economic outlook update, Tuesday
• EU energy ministers emergency meeting, Tuesday
• Fed policy decision, briefing, Wednesday
• Australia CPI, Wednesday
• US GDP, Thursday
• Euro-area CPI, Friday
• US consumer income, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.1% as of 1:46 p.m. in Tokyo. The S&P 500 fell 0.9%
• Nasdaq 100 futures were steady. The Nasdaq 100 fell 1.8%
• Japan’s Topix index fell 0.7%
• South Korea’s Kospi index added 0.7%
• Hong Kong’s Hang Seng Index dropped 0.8%
• China’s Shanghai Composite Index shed 0.7%
• Australia’s S&P/ASX 200 Index was little changed
• Euro Stoxx 50 futures slid 0.7%

Currencies

• The Bloomberg Dollar Spot Index was steady
• The euro was at $1.0205, down 0.1%
• The Japanese yen was at 136.20 per dollar, down 0.1%
• The offshore yuan was at 6.7591 per dollar, up 0.1%

Bonds

• The yield on 10-year Treasuries climbed three basis points to 2.78%
• Australia’s 10-year yield fell 11 basis points to 3.34%

Commodities

• West Texas Intermediate crude was at $93.96 a barrel, down 0.8%
• Gold was at $1,726.89 an ounce

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.