Sunday, January 16

Stocks tumble, dollar rallies amid Fed downsizing bets: markets wrap up


US Treasuries and the dollar rallied, while stock index futures tumbled, amid concerns that the Federal Reserve may begin to reduce stimulus this year even as the variant delta virus undermines the world growth.

The 10-year rate lost two basis points and the dollar headed towards the highest level since November. Futures for the S&P 500 index lost 0.7% and those for the Russell 2000 indicator plummeted more than 1%. Oil was down for the sixth day. An indicator of global stocks is heading for the worst week since February.

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Investors are bracing for the withdrawal of unprecedented liquidity in global markets as the developed world seeks massive vaccines to keep the recovery on track. However, the persistent spread of the coronavirus and China’s slowdown in growth raise questions about whether the global economy can absorb the impact of reduced support.

“I don’t think anyone will be surprised if the downsizing starts at the end of this year,” Dana D’Auria, Envestnet’s co-chief investment officer, told Bloomberg Television. He added that the pace of reopenings is a concern for investors amid the spread of delta stress.

The next key moment for investors is the Fed conference in Jackson Hole, Wyoming, on August 26-28, with some waiting for an announcement on the stimulus reduction timeline. Minutes from the central bank’s July meeting showed that most policy makers agreed that the downsizing could start later this year.

Treasury yields fell along the curve on Thursday. The 10-year rate remained close to 1.23%, extending its fall since March to 51 basis points.

European stocks fell the most in a month. MSCI Inc.’s gauge of Asia-Pacific stocks fell 1.8% due to struggles in Chinese tech stocks. Alibaba Group Holding plunged as much as 6.5% to a record low in Hong Kong after China hit the industry with a new round of regulations.

The Bloomberg Commodity Index fell to a month low with oil, copper and iron ore falling. Commodity-linked currencies, including the New Zealand and Australian dollars, fell.

For more market analysis, read our MLIV blog.

Here are some events to watch this week:

  • Bank of Indonesia interest rate decision and Governor Perry Warjiyo briefing on Thursday
  • Initial US Unemployment Claims on Thursday

Some of the main movements in the markets:

Stocks

  • The Stoxx Europe 600 fell 1.3% at 8:32 am London time
  • S&P 500 futures fell 0.7%
  • Nasdaq 100 futures fell 0.7%
  • Dow Jones Industrial Average futures fell 0.7%
  • The MSCI Asia Pacific Index fell 1.8%
  • MSCI emerging markets index fell 2%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.4%
  • The euro fell 0.3% to $ 1.1677.
  • The Japanese yen fell 0.1% to 109.88 per dollar
  • The offshore yuan fell 0.2% to 6.4986 to the dollar.
  • The British pound fell 0.4% to $ 1.3701.

Captivity

  • The 10-year Treasury yield fell two basis points to 1.23%.
  • Germany’s 10-year yield changed little to -0.49%
  • The UK 10-year yield fell three basis points to 0.54%.

Raw Materials

  • Brent crude fell 2.1% to $ 66.80 a barrel
  • Spot gold fell 0.4% to $ 1,779.79 an ounce

© 2021 Bloomberg


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