(Bloomberg) — Stocks in Europe retreated with U.S. futures Monday as investors brace for bond-market volatility and stimulus withdrawal.
Cyclical stocks in energy firms and banks tied to economic expansion were among the biggest gainers on the Stoxx Europe 600, offsetting declines in technology firms and real estate. Contracts on the Nasdaq 100 lagged those on the S&P 500.
Treasury yields steadied around 1.7% following a global bond selloff last week that sparked a rotation out of high-growth equities and into cheaper cyclical stocks.
Markets face increasing volatility as investors grapple with how to reprice assets as the pandemic liquidity that helped drive equities to record highs is withdrawn. The latest U.S. consumer price index data due this week will be keenly watched as the Federal Reserve prepares to subdue price pressures with faster-than-expected rate increases.
“There is plenty of hawkishness yet to be priced in the asset prices, and that could cause a bit more selling across the markets this week, especially in growth stocks which should feel the pinch of higher interest rates compared with the value names,” said Ipek Ozkardeskaya, senior analyst at Swissquote.
The prospect of more aggressive Fed policy is unsettling markets as 2022 kicks off, with the Nasdaq 100 index losing 4.5% in the first week as higher yields batter richly valued and hyper-growth stocks. By contrast value shares such as financials and energy firms are seen as winners of a higher rate regime.
How fast or slowly the Fed should wind down stimulus programs is a subject of intense debate. Some suggest the Fed has been slow to take action against the fastest inflation in 40 years, and others warn that too much action, too soon, will spark a taper tantrum.
Goldman Sachs Group Inc. now expects the Fed to raise rates four times this year and start its balance sheet runoff process in July, if not earlier.
At the same time, the spread of omicron is posing a fresh test for economic activity. China is seeing its first omicron cases in the community, and as the Lunar New Year festivities approach, governments in Taiwan and Vietnam prepared to intensify curbs.
Elsewhere, Bitcoin traded below $42,000 as cryptocurrencies continue to struggle. Crude oil steadied around $79 a barrel after recording the biggest weekly gain in a month. The dollar was steady.
Here are some key events this week:
- Fed Chair Jerome Powell’s confirmation hearing in the Senate Banking Committee. Tuesday
- Kansas City Fed President Esther George, St. Louis Fed President James Bullard discuss economy and monetary policy Tuesday
- Wednesday: EIA crude oil inventory report; China PPI, CPI
- U.S. CPI Wednesday
- U.S. Senate Banking Committee hearing for Lael Brainard, nominated as Fed vice-chair. Thursday
- Richmond Fed President Thomas Barkin; Philadelphia Fed President Patrick Harker; Chicago Fed President Charles Evans on economy and monetary policy. Thursday
- Bank of Korea policy decision, briefing Friday
- Earnings 4Q: Wells Fargo, Citigroup, JPMorgan. Friday
- New York Fed President John Williams speaks Friday
For more market analysis, read our MLIV blog.
Some of the major moves in markets:
Stocks
- Futures on the S&P 500 fell 0.2% as of 6:39 a.m. New York time
- Futures on the Nasdaq 100 fell 0.4%
- Futures on the Dow Jones Industrial Average were little changed
- The Stoxx Europe 600 fell 0.5%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.3% to $1.1328
- The British pound was little changed at $1.3587
- The Japanese yen rose 0.1% to 115.39 per dollar
Bonds
- The yield on 10-year Treasuries was little changed at 1.77%
- Germany’s 10-year yield declined one basis point to -0.05%
- Britain’s 10-year yield was little changed at 1.17%
Commodities
- West Texas Intermediate crude fell 0.3% to $78.64 a barrel
- Gold futures rose 0.2% to $1,800.80 an ounce
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