(Bloomberg) — The global stock rout sparked by investor angst over China’s real-estate sector and Federal Reserve tapering deepened on Monday, with U.S. futures falling more than 1% and European equities hitting a two-month low.
Contracts on the three major U.S. indexes signaled further declines when the market opens after the S&P 500 fell the most in a month, a test for the buy-the-dip mentality as the gauge jabs at its 50-day moving average. Treasuries gained along with the dollar before Wednesday’s Fed meeting, where policy makers are expected to start laying the groundwork for paring stimulus.
The Stoxx Europe 600 index dropped as much as 2%, on track for the biggest decline since July. Raw materials led the broad-based retreat as iron ore extended a slump below $100 a ton and base metals declined after China stepped up restrictions on industrial activity. Germany’s DAX underperformed as a rebalancing takes effect.
Hong Kong shares tumbled amid the biggest selloff in property stocks in more than a year as traders tracked the risk of contagion from the debt crisis at developer China Evergrande Group, which is fueling new fears about China’s growth path.
Aside from Evergrande and the prospect of reduced Fed stimulus, financial markets also face risks from uncertainty over the outlook for President Joe Biden’s $4 trillion economic agenda as well as the need to raise or suspend the U.S. debt ceiling. Investors were already fretting over a slowing global recovery from the pandemic and inflation stoked by commodity prices.
“The edges of the bullish narrative cover are being pulled and the darker underlying reality is coming to the fore,” said Sebastien Galy, a senior macro strategist at Nordea Investment Funds SA. “It is taking the market more time to price in these shocks than I had expected, and the market is far more realistic as the buy-on-dip mentality fades with the fear of inflation.”
Treasury Secretary Janet Yellen said the U.S. government will run out of money to pay its bills sometime in October without action on the debt ceiling, warning of “economic catastrophe” unless lawmakers take the necessary steps.
Meanwhile, emerging-market stocks headed for their biggest drop in a month, while Russia’s ruble and South Africa’s rand led developing-nation currency declines. Bitcoin fell below $45,000.
Here are key events to watch this week:
Canada federal election, MondayBank of Japan rate decision, WednesdayFederal Reserve rate decision, WednesdayBank of England rate decision, ThursdayFed Chair Jerome Powell, Fed Governor Michelle Bowman and Vice Chairman Richard Clarida discuss pandemic recovery, Friday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
Futures on the S&P 500 fell 1.3% as of 6:30 a.m. New York timeFutures on the Nasdaq 100 fell 1%Futures on the Dow Jones Industrial Average fell 1.5%The Stoxx Europe 600 fell 1.9%The MSCI World index fell 0.6%
Currencies
The Bloomberg Dollar Spot Index rose 0.2%The euro was little changed at $1.1716The British pound fell 0.3% to $1.3695The Japanese yen rose 0.3% to 109.62 per dollar
Bonds
The yield on 10-year Treasuries declined three basis points to 1.33%Germany’s 10-year yield declined three basis points to -0.31%Britain’s 10-year yield declined three basis points to 0.82%
Commodities
West Texas Intermediate crude fell 2% to $70.54 a barrelGold futures rose 0.4% to $1,759 an ounce
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