(Bloomberg) — Stocks and US equity futures fell Tuesday amid escalating US-China tension over Taiwan and deepening worries about a global economic slowdown, driving investors into the safety of government bonds.
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The Stoxx Europe 600 fell 0.7%, with energy among the few industries bucking the trend after BP Plc hiked its dividend and accelerated share buybacks to the fastest pace yet after profits surged. An Asian share index slid the most in three weeks, with some of the steepest falls in Hong Kong, China and Taiwan. Contracts on the S&P 500 and Nasdaq 100 were also in the red as July’s equity market rebound stumbled into August.
US House Speaker Nancy Pelosi is set to land in Taiwan on Tuesday and would be the highest-ranking American politician to visit in 25 years. China views the island as its territory and has vowed an unspecified military response to any Pelosi visit.
The visit may end up being another “short-term dislocation” for markets but “it’s always concerning when they do happen,” Ayako Yoshioka, senior portfolio consultant at Wealth Enhancement Group, said on Bloomberg Radio.
A move into havens lifted the yen and Treasuries, sending the 10-year yield toward 2.5%.
The wide-ranging strains in US-China ties are exacerbating the geopolitical stress already buffeting markets from Russia’s war in Ukraine.
“All eyes will be on China’s military to see how they react if Pelosi does indeed go to Taiwan,” Edward Moya, senior market analyst for the Americas at Oanda, wrote in a note.
Investors are also keeping a wary eye out for more potentially hawkish comments from Federal Reserve officials about the need for higher interest rates to restrain elevated inflation.
Expectations for how aggressive the Fed must be have receded because of recession risk, so any shift in those perceptions could stoke market volatility.
The prospect of a demand slowdown has sapped oil, leaving it around $94 a barrel. Oilseed and grain futures fell after the first grain ship since Russia’s invasion left Ukraine, heralding some relief for a tight global food market.
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What to watch this week:
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Airbnb, Alibaba and BP are among earnings reports
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US JOLTS job openings, Tuesday
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Chicago Fed President Charles Evans, St. Louis Fed President James Bullard due to speak at separate events, Tuesday
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OPEC+ meeting on output, Wednesday
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US factory orders, durable goods, ISM services, Wednesday
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BOE rate decision, Thursday
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US initial jobless claims, trade, Thursday
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Cleveland Fed President Loretta Mester due to speak, Thursday
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US employment report for July, Friday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 0.7% as of 8:15 a.m. London time
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Futures on the S&P 500 fell 0.7%
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Futures on the Nasdaq 100 fell 0.7%
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Futures on the Dow Jones Industrial Average fell 0.5%
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The MSCI Asia Pacific Index fell 1.3%
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The MSCI Emerging Markets Index fell 1.3%
Currencies
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The Bloomberg Dollar Spot Index rose 0.1%
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The euro fell 0.2% to $1.0240
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The Japanese yen rose 0.7% to 130.72 per dollar
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The offshore yuan rose 0.1% to 6.7769 per dollar
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The British pound fell 0.3% to $1.2208
Bonds
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The yield on 10-year Treasuries declined three basis points to 2.54%
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Germany’s 10-year yield declined seven basis points to 0.71%
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Britain’s 10-year yield declined six basis points to 1.75%
Commodities
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