Stocks Slump on Rates Outlook, US-China Friction: Markets Wrap

(Bloomberg) -- Shares tumbled Monday amid intensifying concern over rising global interest rates and as Chinese investors returned from a week-long holiday to tighter restrictions on American technology.

A gauge of Asian equities dropped by more than 1%, led by tech stocks in Hong Kong, while US futures also slid. A rebound in Covid cases in China added to the downbeat tone. Commodities declined as traders weighed mounting risks to economic growth.   

The US measures include restrictions on the export of some types of chips used in artificial intelligence and supercomputing, and also tighter rules on the sale of semiconductor equipment to any Chinese company.

Bond yields climbed in Australia and New Zealand, following gains in Treasury yields on Friday, after strong US labor data solidified wagers that the Federal Reserve will raise rates by 75 basis points for a fourth straight time next month.

The dollar fluctuated versus its Group-of-10 counterparts while China set its reference rate for the yuan stronger than expected for a 28th day. 

Oil eased as risks to energy demand stemming from tighter monetary policy halted a rally triggered by OPEC+’s decision to cut supply. Gold steadied in Asia after plunging below the $1,700 an ounce mark last week.

Investors continued to digest comments from Fed Bank of New York President John Williams, who said last week that rates need to rise to around 4.5% over time, but the pace and ultimate peak of the tightening campaign will hinge on how the economy performs. Officials have been resolutely hawkish in their message that they won’t be deterred from raising rates by volatility in financial markets. 

All eyes will now be on this week’s US inflation data after a hotter-than-expected reading in August tempered hopes of a nascent slowdown. Separately, minutes from the Fed’s September meeting will give clues into the central bank’s tolerance for economic pain.

“US CPI is the marquee event risk and when we see expectations that core CPI will rise 20 basis points to 6.5% from 6.3%, it will give the Fed even more fodder to keep tightening financial conditions,” Chris Weston, head of research at Pepperstone Group Ltd., wrote in a note. “The short sellers are having it all their way – we have no central bank support.”

Markets are closed for a holiday in Japan. The US bond market is closed but the stock market will be open. 

Key events this week:

• Earnings this week include: JPMorgan Chase & Co., Citigroup Inc., Morgan Stanley, BlackRock, Delta Air Lines, Fast Retailing, Infosys, PepsiCo, TSMC, Tata Consultancy, UnitedHealth, U.S. Bancorp, Walgreens Boots, Wells Fargo, Wipro
• Fed’s Lael Brainard and Charles Evans speak, Monday
• IMF’s World Economic Outlook and Global Financial Stability Report, Tuesday
• Fed’s Loretta Mester speaks, Tuesday
• BOE’s Andrew Bailey speaks, Tuesday
• FOMC minutes for September meeting, Wednesday
• US PPI, mortgage applications, Wednesday
• OPEC Monthly Oil Market Report, Wednesday
• Fed’s Michelle Bowman and Neel Kashkari speak
• ECB’s Christine Lagarde speaks
• US CPI, initial jobless claims, Thursday
• G-20 finance ministers and central bankers meet, Thursday
• China CPI, PPI, trade, Friday
• US retail sales, business inventories, University of Michigan consumer sentiment, Friday
• BOE emergency bond buying is set to end, Friday

Some of the main moves in markets:

Stocks

• Futures on the S&P 500 fell 0.5% as of 12:49 p.m. Tokyo time. The S&P 500 fell 2.8%
• Futures on the Nasdaq 100 fell 0.5%. The Nasdaq 100 fell 3.9%
• The S&P ASX Index fell 1.4%
• The Hang Seng Index fell 2.5%
• The Shanghai Composite Index fell 0.4%
• Euro Stoxx 50 futures fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro fell 0.1% to $0.9733
• The Japanese yen fell 0.2% to 145.48 per dollar
• The offshore yuan rose 0.1% to 7.1229 per dollar
• The British pound was little changed at $1.1075

Cryptocurrencies

• Bitcoin fell 0.2% to $19,444.3
• Ether rose 0.1% to $1,322.76

Bonds

• The US 10-year Treasury yield increased 6 basis points to 3.88% on Friday
• Australia’s 10-year yield advanced 4 basis points to 3.89%

Commodities

• West Texas Intermediate crude fell 0.9% to $91.85 a barrel
• Spot gold fell 0.4% to $1,688.44 an ounce

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