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Stocks tumble on rate outlook, U.S.-China friction: markets wrap up

Shares fell on Monday amid growing concern over rising global interest rates and as Chinese investors returned from a week-long vacation to tighter restrictions on U.S. technology.

A gauge of Asian stocks fell more than 1%, led by tech stocks in Hong Kong, while US futures also slipped. A rebound in Covid cases in China amplified the pessimistic tone. Commodities fell as traders assessed growing risks to the global economy.

The US measures include export restrictions on certain types of chips used in artificial intelligence and supercomputing, as well as stricter rules on the sale of semiconductor equipment to any Chinese company. This latest tension between Washington and Beijing adds to a host of geopolitical risks for markets, from Taiwan to North Korea to Ukraine.

Bond yields climbed in Australia and New Zealand, following gains in Treasury yields on Friday, after strong US jobs data solidified bets that the Federal Reserve will raise rates by 75 points basis for the fourth consecutive time next month.

“The debate over whether or not we’re going to go into a recession is over,” Jonathan Garner, chief Asia and emerging markets strategist at Morgan Stanley, told Bloomberg Television. “Everything we’re seeing indicates that we’re in some sort of recessionary environment starting in the third quarter and we’ll have a lot more of that as companies announce it over the next few weeks.”

The dollar fluctuated against its Group of 10 counterparts as China set its benchmark rate for the yuan stronger than expected for a 28th day.

Oil eased as risks to energy demand from tighter monetary policy halted a rally sparked by OPEC+’s decision to cut supply. Gold extended its decline in Asia after plunging below $1,700 an ounce last week.

Investors continued to digest comments from New York Fed Bank President John Williams, who said last week that rates needed to rise to around 4.5% over time, but the pace and ultimate spike of the tightening campaign will depend on the performance of the economy. Officials have been decidedly hawkish in their message that they will not be deterred from raising rates by financial market volatility.

All eyes will now be on this week’s US inflation data after a warmer-than-expected reading in August dampened hopes of an incipient slowdown. Moreover, the minutes of the Fed’s September meeting will give clues to the central bank’s tolerance for economic difficulties.

“The US CPI is the headline event risk and when we see expectations that the core CPI will rise 20 basis points to 6.5% from 6.3%, that will give even more fodder to the Fed to continue to tighten financial conditions,” Chris Weston, head of research at Pepperstone Group, wrote in a note. “Short sellers have it all – we have no central bank support.”

The markets are closed for a holiday in Japan. The US bond market is closed but the stock market will be open.

Key events this week:

  • Earnings this week include: JPMorgan Chase & Co., Citigroup Inc., Morgan Stanley, BlackRock, Delta Air Lines, Fast Retailing, Infosys, PepsiCo, TSMC, Tata Consultancy, UnitedHealth, US Bancorp, Walgreens Boots, Wells Fargo, Wipro
  • The Fed’s Lael Brainard and Charles Evans speak on Monday
  • World Economic Outlook and IMF Global Financial Stability Report, Tuesday
  • Fed’s Loretta Mester speaks on Tuesday
  • BOE’s Andrew Bailey speaks on Tuesday
  • FOMC Minutes for September Meeting, Wednesday
  • US PPI, mortgage applications, Wednesday
  • OPEC’s monthly oil market report, Wednesday
  • The Fed’s Michelle Bowman and Neel Kashkari talk
  • ECB’s Christine Lagarde speaks
  • US CPI, first jobless claims, Thursday
  • G-20 finance ministers and central bankers meet on Thursday
  • China CPI, PPI, trade, Friday
  • U.S. Retail Sales, Business Inventories, University of Michigan Consumer Sentiment, Friday
  • BOE emergency bond buying set to end on Friday

Some of the major movements in the markets:

Shares

  • S&P 500 futures fell 0.6% at 6:50 a.m. in London. The S&P 500 fell 2.8% on Friday
  • Nasdaq 100 futures fell 0.6%. The Nasdaq 100 fell 3.9%
  • The Hang Seng index fell 2.9%
  • The Shanghai Composite Index fell 0.8%
  • Euro Stoxx 50 futures fell 1.1%
  • The S&P ASX index fell 1.4%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.1%
  • The euro fell 0.2% to $0.9723
  • The Japanese yen fell 0.1% to 145.40 per dollar
  • The offshore yuan rose 0.2% to 7.1217 per dollar
  • The British pound fell 0.2% to $1.1069

Cryptocurrencies

  • Bitcoin fell 0.4% to $19,401.75
  • Ether fell 0.2% to $1,318.23

Obligations

  • The 10-year US Treasury yield rose 6 basis points to 3.88% on Friday
  • The Australian 10-year yield rose 2 basis points to 3.87%

Goods

  • West Texas Intermediate crude fell 0.7% to $92.01 a barrel
  • Spot gold fell 0.4% to $1,687.23 an ounce

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