Stocks, US futures decline as caution spurs dollar: markets wrap

Stocks and US equity futures fell Tuesday as the dollar and sovereign bonds rose, a pattern highlighting pervasive unease about the economic outlook amid high inflation and China’s struggles with Covid.

An Asian share index was dragged lower by the technology sector as well as weakness in Japan, Hong Kong and China. S&P 500, Nasdaq 100 and European contracts shed over 0.5% after a Wall Street slide Monday.

The dollar pushed toward levels last seen at the height of the 2020 market panic over Covid and the yen strengthened, underlining investor caution. The euro-area’s common currency, meanwhile, is in sight of parity with the greenback, sapped by the region’s energy crisis and acute recession fears.

Treasuries extended gains, taking the US 10-year yield to 2.96%. Bonds also rallied in Australia. Commodities including oil and iron ore were under pressure. Bitcoin dropped below $20,000

Much is riding on upcoming company profit filings and this week’s US inflation data. A brief equity rebound from this year’s rout is already fizzling ahead of the reports. Risk appetite may struggle to digest a darkening earnings outlook alongside stubborn price pressures that point to more monetary tightening.

Dollar strength will not only “affect this quarter’s earnings, but more likely it’s going to affect the revenue generation outlook for the next couple of quarters and that, I think, is a big problem,” Kimberly Forrest, founder and chief investment officer of Bokeh Capital Partners, said on Bloomberg Radio.

In China, investors are concerned more Covid lockdowns may lie ahead as Beijing continues with a strategy of mass testing and mobility curbs. A government push for stimulus to shore up growth is starting to have an impact: credit jumped last month to the highest on record for June.

Meanwhile, the latest Fed commentary highlighted both the central bank’s hawkishness and the risks that come with aggressive interest-rate hikes.

Fed Bank of Atlanta President Raphael Bostic said the US economy can cope with higher interest rates and repeated his support for another jumbo move this month. Fed Bank of Kansas City President Esther George, who dissented last month against the central bank’s 75 basis-point rate increase, cautioned that rushing to tighten policy could backfire.

In company news, Chinese electric-car giant BYD Co. slumped after a stake matching the size of Berkshire Hathaway Inc.’s appeared in Hong Kong’s stock-market clearing system, fueling speculation that Warren Buffett’s firm may be adjusting its holdings.

What to watch this week:

• Earnings due from JPMorgan, Morgan Stanley, Citigroup, Wells Fargo
• BOE Governor Andrew Bailey discusses the economic landscape, Tuesday
• Amazon.com Inc. kicks off its Prime Day event, Tuesday
• South Korea, New Zealand rate decisions, Wednesday
• US CPI data, Wednesday
• Federal Reserve Beige Book, Wednesday
• US PPI, jobless claims, Thursday
• China GDP, Friday
• US business inventories, industrial production, University of Michigan consumer sentiment, Empire manufacturing, retail sales, Friday
• G-20 finance ministers, central bankers meet in Bali, from Friday
• Atlanta Fed President Raphael Bostic speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.6% as of 1:27 p.m. in Tokyo. The S&P 500 fell 1.2%
• Nasdaq 100 futures shed 0.7%. The Nasdaq 100 fell 2.2%
• Japan’s Topix index fell 1.7%
• Australia’s S&P/ASX 200 index rose 0.2%
• South Korea’s Kospi index fell 1.2%
• Hong Kong’s Hang Seng index declined 1.2%
• China’s Shanghai Composite index retreated 1%
• Euro Stoxx 50 futures lost 0.8%

Currencies

• The Bloomberg Dollar Spot Index added 0.2%
• The euro was at $1.0015, down 0.3%
• The Japanese yen was at 137.29 per dollar, up 0.1%
• The offshore yuan was at 6.7465 per dollar, down 0.3%

Bonds

• The yield on 10-year Treasuries declined three basis points to 2.96%
• Australia’s 10-year bond yield fell 11 basis points to 3.40%

Commodities

• West Texas Intermediate crude fell 1.6% to $102.46 a barrel
• Gold was at $1,730.22 an ounce, down 0.2%