(Bloomberg) -- U.S. equity futures were mixed on Monday as a rout in Chinese technology stocks weighed on sentiment. A global bond slump deepened as traders anticipated Federal Reserve policy tightening to curb inflation.
Contracts on the S&P 500 pared gains, while those on the Nasdaq 100 dropped. Chinese stocks listed in Hong Kong had their worst day since the global financial crisis, as concerns over Beijing’s close relationship with Russia and renewed regulatory risks sparked panic selling. Some big U.S. tech names including Apple Inc. declined in pre-market trading. A drop in crude oil dragged shares of energy companies lower.
The 10-year Treasury yield climbed to its highest level since July 2019, while the five-year measure crested 2% for the first time in three years. The Fed on Wednesday is expected to begin a cycle of rate increases, starting with a 25 basis-points move. Price pressures were already high before the Ukraine war and the isolation of resource-rich Russia upended commodity flows.
Investors are parsing efforts at diplomacy as Russia continues its war in Ukraine, as well as comments from a U.S. official that Moscow asked China for military assistance. Rising Treasury yields and a 12% drop in global stocks this year signal worries that receding stimulus and higher costs for energy, grains and metals may throttle the world economic recovery.
“We are experiencing extraordinary volatility in global equities compounded by wavering market sentiment, and the risk of recession intensifies on spiraling commodity prices,” Louise Dudley, portfolio manager for global equities at Federated Hermes, wrote in a note. “We expect ongoing swings in the short term as geopolitical uncertainty over Russian crude persists.”
The Stoxx Europe 600 index jumped more than 1% before paring the gain. Carmakers outperformed following a “confident” outlook from Volkswagen AG. Basic-resources and energy stocks fell. Tech investor Prosus NV slumped more than 10%.
The 11% plunge in a gauge of Chinese tech firms reverberated around the region, leaving an Asia-Pacific equity index in the red for a second session. Even as China denied it’s beenasked for military assistance, traders worry that Beijing’s potential overture toward Vladimir Putin could bring a global backlash against Chinese firms, even sanctions. Sentiment was also hurt by a Covid-induced lockdown in the southern city of Shenzhen, a key tech hub, and the northern province of Jilin.
Elsewhere, WTI crude dropped below $105 a barrel. The dollar edged lower and gold retreated. The ruble strengthened about 3% versus the greenback in Moscow trading, with Russia’s stock market still closed. Investors are waiting to see if Russia defaults on its international debt after losing access to almost half of its foreign-exchange reserves.
‘Stuck’ Fed
The Fed is the drawcard among eight Group-of-20 members whose monetary officials are due this week to assess economic prospects.
The Fed is “really stuck between the real economy and the financial economy,” Karen Harris, Bain & Co. global head of macro research, said on Bloomberg Television. “You have mainstream struggling with inflation -- that’s why we are set to see these rises coming in March. On the other side we are trying not to prick the financial economy. Either path is deflationary, recessionary.”
While the U.S. and some other nations are tightening monetary settings, speculation is growing that China will introduce more easing to alleviate a slowdown. The yuan and China’s 10-year government bond yield retreated.
Meanwhile, senior U.S. and China officials are set to meet Monday to discuss Ukraine. Russian missiles hit a military training facility in western Ukraine close to Poland, raising new concerns about the conflict potentially spilling over Ukraine’s borders.
Here are some key events to watch this week:
- China one-year medium-term lending facility rate, economic activity data, Tuesday
- EIA crude oil inventory report, Wednesday
- FOMC rate decision and Fed Chair Jerome Powell news conference, Wednesday
- Bank of England rate decision, Thursday
- ECB President Christine Lagarde, Executive Board member Isabel Schnabel, Governing Council member Ignazio Visco and Chief Economist Philip Lane speak at a conference, Thursday
- Bank of Japan rate decision, Friday
For more markets news, follow our Markets Live blog.
Some of the main moves in markets:
Stocks
- Futures on the S&P 500 rose 0.3% as of 7:59 a.m. New York time
- Futures on the Nasdaq 100 fell 0.4%
- Futures on the Dow Jones Industrial Average rose 0.6%
- The Stoxx Europe 600 rose 0.7%
- The MSCI World index fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.3% to $1.0942
- The British pound fell 0.1% to $1.3022
- The Japanese yen fell 0.6% to 117.95 per dollar
Bonds
- The yield on 10-year Treasuries advanced seven basis points to 2.07%
- Germany’s 10-year yield advanced nine basis points to 0.33%
- Britain’s 10-year yield advanced nine basis points to 1.58%
Commodities
- West Texas Intermediate crude fell 4.8% to $104.10 a barrel
- Gold futures fell 1% to $1,964.70 an ounce
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