Global equities sank to a six-week low, the dollar rallied and commodities tumbled after China put the megacity of Chengdu under lockdown, delivering a blow to economic growth.
(Bloomberg) — Global equities sank to a six-week low, the dollar rallied and commodities tumbled after China put the megacity of Chengdu under lockdown, delivering a blow to economic growth.
Nasdaq 100 Index futures dropped and US chipmakers fell in premarket trading after Nvidia Corp. warned that new rules on China exports may affect hundreds of millions of dollars in revenue.
European bonds tumbled, with Italian 10-year yields topping 4% for the first time since June, as investors bet that the central bank will have to deliver more rate hikes. The euro weakened and the yen dropped to a 24-year low.
Across markets, investors were pulling out of risk assets and looking for safety in cash. Fears of an economic slowdown are intensifying as European and US policymakers implement restrictive monetary policy to choke inflation.
Stocks are also entering a month that is often poor for returns, following losses in August. The S&P 500 has averaged declines of 0.6% and 0.7% for August and September, respectively, over the past 25 years.
Chengdu is the biggest city to shut down since Shanghai’s two-month lockdown earlier this year, as that move continues to ripple through the economy.
Oil and natural gas retreated as Europe considers various measures to intervene in the energy market.
Still, many now expect the European Central Bank to hike rates by 75 basis points at next week’s meeting as the region’s energy crisis spurs record inflation.
The US jobs report on Friday also has the potential to tip the scales toward a third move of that size later this month after Federal Reserve Chair Jerome Powell said it could be on the table, depending on the data.
“Powell gave no doubt that the central bank will do whatever it takes to dampen inflation,” Geir Lode, head of global equities at Federated Hermes Ltd wrote in a note to investors. “A triple interest rate of 75 basis points is expected in the market.”
Investors are also assessing political risks as Russia’s invasion of Ukraine continues and tensions in Taiwan mount, with the latter shooting down a civilian drone after weeks of complaints about incursions by unmanned aerial vehicles from China.
Russia is considering a plan to buy as much as $70 billion in yuan and other “friendly” currencies this year to slow the ruble’s surge, before shifting to a longer-term strategy of selling its holdings of the Chinese currency to fund investment.
“The Fed effect is now melding with other global factors such as China’s growth slowdown and Europe’s stagflation to create a more fraught global macro environment with higher rates and lower growth,” said Alvin Tan, strategist at RBC Capital Markets in Singapore. “It is this combination of hawkish central banks led by the Fed, China’s slowdown and Europe’s stagflation that is now driving volatility across global markets.”
Here are some key events to watch this week:
- ECB Governing Council members due to speak at event Tuesday through Sept. 2
- US nonfarm payrolls, Friday
- UK leadership ballot closes Friday. Winner announced Sept. 5
Will Chinese sovereign bonds outperform Treasuries? China is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.
Some of the main moves in markets:
Stocks
- Futures on the S&P 500 fell 0.3% as of 7:50 a.m. New York time
- Futures on the Nasdaq 100 fell 0.6%
- Futures on the Dow Jones Industrial Average fell 0.3%
- The Stoxx Europe 600 fell 1.2%
- The MSCI World index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.4% to $1.0015
- The British pound fell 0.4% to $1.1579
- The Japanese yen fell 0.2% to 139.19 per dollar
Bonds
- The yield on 10-year Treasuries was little changed at 3.19%
- Germany’s 10-year yield advanced two basis points to 1.56%
- Britain’s 10-year yield advanced three basis points to 2.83%
Commodities
- West Texas Intermediate crude fell 1.5% to $88.19 a barrel
- Gold futures fell 0.8% to $1,712.30 an ounce
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