U.S. Futures, European Bonds Drop On Economic Woes: Markets Wrap

(Bloomberg) -- US equity-index futures and European bonds fell as investors worried about the twin threats of dwindling economic growth and stubborn inflation. 

Contracts on the S&P 500 and Nasdaq 100 dropped at least 0.3% each after the underlying indexes capped their 11th decline in 13 weeks. European stocks rose for the first time in four days as dip-buyers emerged. The dollar erased its losses. Italian bonds tumbled with investors watching domestic political tensions. US markets were closed for Independence Day holiday.

World stocks and bonds are in the grip of the worst selloff in at least three decades as increasing chances of a US -- or even global -- recession are spooking investors. At the same time, sticky inflation has left little room for the Federal Reserve to apply brakes on monetary tightening. This toxic combination presents markets a trading challenge not seen since the late 1970s.

“The market has begun to worry more about economic growth than just liquidity withdrawal and inflation,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note. “Unlike previous downturns, inflation is much higher and unemployment is much lower. These dynamics delay any potential dovish central-bank pivot despite the rapid shift in front-end rate expectations over the past week.”

The MSCI All-Country World Index, the global benchmark, plunged 21% in the first half, the worst year-to-date losses since at least 1988. Similarly, the 14% loss in the Bloomberg Global Aggregate Index of investment-grade debt was its worst performance since 1990, the earliest date for which records are available.

The dollar was little changed Monday, after trading lower for most of the European session. US President Joe Biden may announce the rolling back of some tariffs on Chinese imports as soon as this week, Dow Jones reported.

In Europe, the Stoxx 600 benchmark climbed 0.5%. Energy, commodity and health-care stocks were the biggest gainers. 

Italian bonds slid as investors awaited a meeting between Prime Minister Mario Draghi and Five Star leader Giuseppe Conte to settle weeks of political tensions. The nation's 10-year yield jumped 15 basis points to 3.24%, widening its spread over German bunds to 1.91 percentage points.

In China, officials were trying to repel a Covid flareup that could buffet an economically significant region. That's another test of Beijing's strategy of trying to eliminate the pathogen with mass testing and disruptive lockdowns. A gauge of Hong Kong-traded Chinese stocks fell to the lowest level since June 24.

Separately, developer Shimao Group Holdings Ltd. said it didn't pay a $1 billion dollar note that matured Sunday, among the biggest dollar-payment failures so far this year in China.

Crude oil rose as traders weighed tight supplies against a global economic slowdown. Bitcoin hovered above the $19,500 level.

What to watch this week:

• Australia rate decision, Tuesday
• PMIs for euro area, China, India among others, Tuesday
• US factory orders, durable goods, Tuesday
• FOMC minutes, US PMIs, ISM services, JOLTS job openings, Wednesday
• EIA crude oil inventory report, Thursday
• Fed Governor Christopher Waller, St. Louis Fed President James Bullard, scheduled to speak, Thursday
• ECB account of its June policy meeting, Thursday
• US employment report for June, Friday

Some of the main moves in markets:

Stocks

• Futures on the S&P 500 fell 0.4% as of 3:02 p.m. New York time
• Futures on the Dow Jones Industrial Average fell 0.3%
• The MSCI World index rose 0.3%
• Futures on the Nasdaq 100 fell 0.5%
• The MSCI Asia Pacific Index rose 0.5%, more than any closing gain since June 27
• The MSCI Emerging Markets Index was little changed
• Ibovespa Brasil Sao Paulo Stock Exchange Index fell 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.1% to $1.0425
• The British pound rose 0.1% to $1.2108
• The Japanese yen fell 0.4% to 135.70 per dollar
• The offshore yuan was little changed at 6.6963 per dollar
• The Brazilian real strengthened 0.2% to 5.3233 per dollar
• The Mexican peso fell 0.2% to 20.3022 per dollar

Bonds

• Germany's 10-year yield rose 10 basis points to 1.33%
• Britain's 10-year yield rose 11 basis points

Commodities

• West Texas Intermediate crude rose 2.1% to $110.66 a barrel
• Gold futures rose 0.4%, more than any closing gain since June 16

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