US futures retreated and European stocks pared gains Tuesday as investors parsed comments from Federal Reserve officials on interest rate hikes and assessed the impact of Covid infections in China.
Contracts on the S&P 500 fell 0.2%, while those on the Nasdaq 100 slipped 0.4%. The Stoxx Europe 600 Index struggled to hold on to an initial advance even as oil majors BP Plc and Shell Plc rallied on stronger oil prices.
A gauge of Asian equities was off its intraday highs as stocks in Hong Kong slid with China’s daily virus infections climbing to near the highest on record. Covid-control restrictions now affect a fifth of China’s economy. The dollar weakened against all major currencies and Treasury yields declined.
Fed officials have broadly maintained their steadfast stance to fight against inflation. Yet San Francisco Fed President Mary Daly also said that officials need to be mindful of the lags in the transmission of policy changes while her Cleveland counterpart Loretta Mester said she’s open to slowing the tempo of rate hikes.
“In a year like this, it is so difficult and often a fool’s errand to read too much into any one speech from one Federal Reserve official,” Sarah Ponczek, financial adviser at UBS Private Wealth Management, said on Bloomberg Television. “The reality is that we do expect that the Federal Reserve is still likely going to raise interest rates again in December.”
JPMorgan Chase & Co. strategist Marko Kolanovic, who until recently had been one of the most vocal bulls on Wall Street, said risky assets may languish until the Fed reverses course on its hawkish campaign to raise interest rates. A near-term pivot is likely not in the cards and JPMorgan expects assets to still be “rangebound with a more pronounced downside risk.”
Meanwhile, China reopening may only be a story for the second quarter of next year as the country enters the winter months, according to Dwyfor Evans, head of Asia Pacific macro strategy at State Street Global Markets.
“To actually expect a very conservative political body to suddenly open up China and remove restrictions in November and into the most dangerous season as it were for these type of pandemic instances, we always thought that was very, very optimistic,” Evans said on Bloomberg Television.
News of salary cuts at Chinese e-commerce firm JD.com also dragged down sentiment.
Oil advanced as investors assessed a clouded supply outlook and concerns over weaker demand in China, while Saudi Arabia pushed back against reports of a potential OPEC+ production increase. Gold rose on weaker dollar.
Cryptocurrency prices were mixed, with investors braced for more ructions as further digital-asset sector bankruptcies loom following the demise of Sam Bankman-Fried’s FTX empire.
Key events this week:
US Richmond Fed manufacturing index, Tuesday
OECD releases Economic Outlook, Tuesday
Fed’s Loretta Mester and James Bullard speak, Tuesday
S&P Global PMIs: US, Euro area, UK, Wednesday
US MBA mortgage applications, durable goods, initial jobless claims, University of Michigan sentiment, new home sales, Wednesday
Minutes of the Federal Reserve’s Nov. 1-2 meeting, Wednesday
ECB publishes account of its October policy meeting, Thursday
US stock and bond markets are closed for the Thanksgiving holiday, Thursday
US stock and bond markets close early, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 was little changed as of 8:48 a.m. London time
Futures on the S&P 500 fell 0.2%
Futures on the Nasdaq 100 fell 0.4%
Futures on the Dow Jones Industrial Average fell 0.2%
The MSCI Asia Pacific Index rose 0.3%
The MSCI Emerging Markets Index fell 0.4%
Currencies
The Bloomberg Dollar Spot Index fell 0.2%
The euro rose 0.3% to $1.0270
The Japanese yen rose 0.3% to 141.77 per dollar
The offshore yuan rose 0.5% to 7.1426 per dollar
The British pound rose 0.1% to $1.1836
Cryptocurrencies
Bitcoin rose 0.6% to $15,730.52
Ether fell 0.6% to $1,087.23
Bonds
The yield on 10-year Treasuries declined two basis points to 3.81%
Germany’s 10-year yield advanced two basis points to 2.02%
Britain’s 10-year yield advanced three basis points to 3.21%
Commodities
Brent crude rose 1.1% to $88.42 a barrel
Spot gold rose 0.4% to $1,744.56 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Tommi Utoslahti.
