U.S. equity futures slipped lower Monday, following on from the worst week for Wall Street since March, as investors continue to retreat from risk markets amid a ‘higher for longer’ mantra on interest rates from western central banks and weakening growth prospects in major global economies.
The S&P 500 closed at its lowest levels since June on Friday, after falling nearly 2.9% for the week, following hawkish signals on rate hikes from the Federal Reserve that pushed Treasury bond yields to their highest levels in more than a decade.
Bank of America’s weekly ‘Flow Show’ report also suggested that investors tore nearly $17 billion from global equity markets last week, the highest tally of the year, as concerns over a looming government shutdown, the end of a moratorium on student loan payments and rising oil and gas prices look set to blunt consumer spending, as well as U.S. growth prospects, into the end of the year and beyond.
At the same time, the report noted investors plowing another $2.6 billion in bonds, extending a run of 26 consecutive weekly gains. Global fund managers have also put a collective $1 trillion into cash this year, with both moves suggesting bets that central bank rate cuts remain a long way off with inflation rates more than double forecasts and set to rise further over the coming months.
Benchmark 10-year Treasury note yields, which a 2007 high of 4.508% on Friday, eased to 4.487% in overnight trading as 2-year notes dipped modestly, to 5.129%.
The U.S. dollar index, however, extended gains against its global peers into an 11th consecutive week, rising 0.12% to a six-month high of 105.711 in overnight trading as bets on a December Fed rate hike climbed to around 40%.
Markets will get an early test for at least one of those themes later this week, in the form of the August reading of Fed’s preferred inflation gauge on Thursday, as well as what could be an early look into autumn consumer spending patterns from Costco’s COST quarter earnings update after the close of trading Tuesday.
Heading into the opening bell on Wall Street, futures contracts tied to the S&P 500, which is down 4.16% on the month, were indicating a 5 point decline to start the Monday session.
Futures tied to the Dow Jones Industrial Average were indicating a 28 point opening bell dip while those linked to the tech-focused Nasdaq suggested 30 point decline.
Overnight in Asia, more bad news from the property sector sent stocks in China lower on the session, pulling the MSCI Asia ex-Japan index back to the lowest levels in nearly 10 months. Japan’s Nikkei 225, however, rose 0.8% on the session as the yen weakened to 148.57 against the greenback, coming closer to the 150 mark that could trigger market intervention from the Bank of Japan.
In Europe, the Stoxx 600 was marked 0.6% lower in early Frankfurt trading, while Britain’s FTSE 100 fell 0.54% in London.
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