(Bloomberg) — Stocks in Europe plunged and U.S. equity futures declined at the start of a week abounding with risks including spillover from China Evergrande Group’s debt woes, falling commodity prices and the Federal Reserve policy meeting.
The Stoxx Europe 600 index dropped 1.6%, on track for the biggest decline in two months. Raw materials led the broad-based retreat as iron ore extended a slump below $100 a ton after China stepped up restrictions on industrial activity. Base metals including copper also fell as the dollar rose before Wednesday’s Fed meeting, where policy makers are expected to start laying the groundwork for paring stimulus. Treasury yields ticked lower.
U.S. contracts dropped after the S&P 500 slid the most in a month, a test for the buy-the-dip mentality as the gauge jabs at its 50-day moving average. Hong Kong shares tumbled amid the biggest selloff in property stocks in more than a year as traders tracked the risk of contagion from the debt crisis at developer Evergrande, which is fueling new fears about China’s growth path. The offshore yuan declined.
Aside from Evergrande and the prospect of reduced Fed stimulus, financial markets also face risks from uncertainty over the outlook for President Joe Biden’s $4 trillion economic agenda as well as the need to raise or suspend the U.S. debt ceiling. Investors were already fretting over a slowing global recovery from the pandemic and inflation stoked by commodity prices.
“The edges of the bullish narrative cover are being pulled and the darker underlying reality is coming to the fore,” said Sebastien Galy, a senior macro strategist at Nordea Investment Funds SA. “It is taking the market more time to price in these shocks than I had expected, and the market is far more realistic as the buy-on-dip mentality fades with the fear of inflation.”
Treasury Secretary Janet Yellen said the U.S. government will run out of money to pay its bills sometime in October without action on the debt ceiling, warning of “economic catastrophe” unless lawmakers take the necessary steps.
Here are key events to watch this week:
Canada federal election, MondayBank of Japan rate decision, WednesdayFederal Reserve rate decision, WednesdayBank of England rate decision, ThursdayFed Chair Jerome Powell, Fed Governor Michelle Bowman and Vice Chairman Richard Clarida discuss pandemic recovery, Friday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 1.6% as of 9:09 a.m. London timeFutures on the S&P 500 fell 1.1%Futures on the Nasdaq 100 fell 0.9%Futures on the Dow Jones Industrial Average fell 1.3%The MSCI Asia Pacific Index fell 1%The MSCI Emerging Markets Index fell 1.3%
Currencies
The Bloomberg Dollar Spot Index rose 0.2%The euro fell 0.1% to $1.1710The Japanese yen rose 0.2% to 109.73 per dollarThe offshore yuan fell 0.2% to 6.4843 per dollarThe British pound fell 0.5% to $1.3676
Bonds
The yield on 10-year Treasuries declined two basis points to 1.34%Germany’s 10-year yield declined three basis points to -0.31%Britain’s 10-year yield declined three basis points to 0.82%
Commodities
Brent crude fell 1% to $74.57 a barrelSpot gold was little changed
More stories like this are available on bloomberg.com
Subscribe now to stay ahead with the most trusted business news source.
©2021 Bloomberg L.P.
