Friday, September 22, 2023

US Futures Fall as China Data Saps Risk Appetite: Markets Wrap

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(Bloomberg) — US equity futures and European stocks followed Asian shares lower after weak services-industry data from China raised fresh concerns about the outlook for the global economy.

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Contracts on the S&P 500 and Nasdaq 100 both fell about 0.5%, suggesting US stocks may open lower when trading resumes after the Independence Day holiday. United Parcel Service Inc. dropped more than 2% in premarket trading as employees moved closer to a strike over pay.

The yield on policy-sensitive two-year Treasuries drifted about two basis points lower to 4.91%, while the 10-year yield rose two points to 3.88%. A gauge of the dollar edged higher.

China’s sputtering recovery and the uncertain outlook for the Federal Reserve’s rate-hike cycle have tempered demand for equities after a stellar first-half rally, driven mostly by mega-cap tech stocks. Later Wednesday, traders will scrutinize the minutes of the Fed’s last policy meeting, which left Wall Street perplexed as officials paused their rate-hike cycle after 10 consecutive moves, but forecast two additional increases this year which could further weigh on economic growth and corporate profits.

“It’s too early to say how deep the recession that is to come will be, but clearly a slowdown is coming,” Fabiana Fedeli, chief investment officer for equities and multi assets at M&G Plc, said on Bloomberg TV. “It’s too early to throw in the towel on risk assets whether in equities or credit. But at the same time you have to stay pretty high on the quality pole.”

With more interest-rate hikes anticipated from the Fed and the ECB in July, an aggregate gauge of borrowing costs calculated by Bloomberg Economics now shows a peak of 6.25% this quarter, up from 6% foreseen three months ago.

The Stoxx Europe 600 Index slid about 0.6%, with miners leading the retreat on concern about waning minerals demand from China. The gauge extended its decline after a composite purchasing managers’ index for the common-currency region was revised lower. Casino Guichard-Perrachon SA plunged as much as 42% as investors size up competing offers to rescue the troubled French grocer.

Initial losses in Chinese equities deepened and the offshore yuan reversed an advance after the Caixin China services purchasing managers’ index was weaker than expected. The yuan’s drop was also notable because it came despite the central bank earlier maintaining its support for the currency in its daily fix.

“This brings focus back on slowing growth momentum and the recent step-up in geopolitical angst,” Charu Chanana, market strategist at Saxo Capital Markets, said of the China services data.

The fading optimism over the outlook for China has also driven investors to lower their expectations for gains in Asian equities this year. A survey of 17 strategists and fund managers by Bloomberg News indicates MSCI Inc.’s Asia-Pacific Index may only rise about 5% by year end from Tuesday’s closing level.

Elsewhere, Brent crude oil was steady after rallying on Tuesday on Saudi Arabian and Russian output cuts. Traders are waiting for potentially critical commentary from Saudi energy minister. Gold was little changed.

Key events this week:

  • OPEC International Seminar, speakers including OPEC+ oil ministers, kicks off in Vienna, Wednesday

  • FOMC issues minutes on June policy meeting, Wednesday

  • New York Fed President John Williams in “fireside chat” at meeting of the Central Bank Research Association at the New York Fed, Wednesday

  • US initial jobless claims, trade, ISM services, job openings, Thursday

  • Dallas Fed President Lorie Logan speaks on a panel about the policy challenges for central banks at CEBRA meeting, Thursday

  • US unemployment rate, nonfarm payrolls, Friday

  • ECB’s Christine Lagarde addresses an event in France, Friday

Some of the main moves in markets today:

Stocks

  • S&P 500 futures fell 0.5% as of 8:23 a.m. New York time

  • Nasdaq 100 futures fell 0.6%

  • Futures on the Dow Jones Industrial Average fell 0.5%

  • The Stoxx Europe 600 fell 0.6%

  • The MSCI World index fell 0.2%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.1%

  • The euro was little changed at $1.0885

  • The British pound was little changed at $1.2701

  • The Japanese yen was little changed at 144.53 per dollar

Cryptocurrencies

  • Bitcoin fell 1.3% to $30,416.21

  • Ether fell 1.6% to $1,911.67

Bonds

  • The yield on 10-year Treasuries advanced two basis points to 3.88%

  • Germany’s 10-year yield was little changed at 2.45%

  • Britain’s 10-year yield advanced two basis points to 4.44%

Commodities

  • West Texas Intermediate crude rose 2.3% to $71.42 a barrel

  • Gold futures rose 0.2% to $1,933.80 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson, Ksenia Galouchko and Tassia Sipahutar.

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©2023 Bloomberg L.P.

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