(Bloomberg) — Asian stocks and U.S. equity futures slid Tuesday amid concerns about tightening monetary policy, geopolitical tension and breathtaking volatility on Wall Street.
S&P 500 and Nasdaq 100 contracts fell about 1%, while an Asia-Pacific share gauge hit the lowest since November 2020. European futures pushed higher, providing a sliver of relief from the gloom.
Asian equity gauges face grim metrics. Japan’s Topix entered a correction, down 10% from a September high. China’s CSI 300 is close to entering a bear market, while Hong Kong’s Hang Seng has been in one since August.
U.S. stocks erased a 4% drop to close up Monday on high volumes. The wild swings highlighted investor nerves over the prospect of Federal Reserve interest-rate hikes and balance-sheet reduction to tackle inflation. U.S.-Russia tension over Ukraine is also buffeting sentiment. The dollar and yen ticked up.
Treasuries were mixed, with the benchmark 10-year yield inching lower. Oil stabilized after getting swept up in the bout of risk aversion.
In Australia, bonds slid after stronger-than-expected inflation data as traders boosted bets on rate increases. Singapore’s dollar strengthened on surprise monetary-policy tightening to damp price pressures.
Global shares are enduring their worst month since the pandemic roiled markets, buffeted by ebbing stimulus as well as an uneven start to the company earnings season. The question now is whether the slide is a buying opportunity or portends wider stress across more asset classes.
“Volatility is back,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, said on Bloomberg Television. “We’re having a sea-change in terms of Fed policy. Equity investors frankly have been behind the curve in anticipating what’s coming, so there’s a lot of catch-up to do.”
The Cboe Volatility Index, a gauge of implied equity swings for the S&P 500, at one point Monday spiked to the highest level in over a year before receding.
Rocky Time
A team of Oppenheimer strategists led by John Stoltzfus wrote Monday that the stock recovery may come sooner than expected and “it’s time to make shopping lists and look for ‘babies that got thrown out with the bath water.’”
But Jeremy Siegel, a professor at the Wharton School of the University of Pennsylvania and author of “Stocks for the Long Run,” said investors should brace for challenges this quarter.
“I’m still very positive on long-term equities but I think it’s in for a rocky time the next two or three months,” he said. “We have to get used to the fact that the Fed is going to be much more hawkish.”
Russia Tension
In the latest development over Ukraine, where Russian troops are massing on the nation’s borders, the U.S. is putting as many as 8,500 troops on heightened alert for deployment to bolster NATO forces in Eastern Europe if needed. Russia has denied it intends to invade.
The market “is obviously getting a little bit jittery about what could happen, whether a military altercation might happen, and what it means for” U.S. sanctions on Russia, Lale Akoner, senior market strategist at BNY Mellon Investment Management, said on Bloomberg Television. She expects the tension to be resolved through a deal rather than conflict.
In cryptocurrencies, Bitcoin — a poster child for swings in sentiment — resumed its retreat amid weakness across a range of cryptocurrencies.
For more market analysis, read our MLIV blog.
What to watch this week:
- IMF launches the World Economic Outlook update Tuesday.
- U.S. Conference Board consumer confidence Tuesday.
- Fed monetary policy decision Wednesday.
- EIA crude oil inventory report Wednesday.
- U.S. new home sales, wholesale inventories Wednesday.
- South African Reserve Bank rate decision Thursday.
- U.S. initial jobless claims, durable goods, GDP Thursday.
- Euro zone economic confidence, consumer confidence Friday.
- U.S. consumer income, University of Michigan consumer sentiment Friday.
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.9% as of 6:51 a.m. in London. The S&P 500 rose 0.3%
- Nasdaq 100 futures shed 1.2%. The Nasdaq 100 rose 0.5%
- Japan’s Topix index dropped 1.7%
- Australia’s S&P/ASX 200 index retreated 2.5%
- South Korea’s Kospi index fell 2.6%
- Hong Kong’s Hang Seng index fell 1.9%
- China’s Shanghai Composite index dropped 2.5%
- Euro Stoxx 50 futures increased 1.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was at $1.1310, down 0.1%
- The Japanese yen was at 113.87 per dollar, up 0.1%
- The offshore yuan was at 6.3330 per dollar
Bonds
- The yield on 10-year Treasuries fell one basis point to 1.76%
- Australia’s 10-year yield was at 1.95%
Commodities
- West Texas Intermediate crude rose 0.8% to $84 a barrel
- Gold was at $1,842.22 an ounce
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