(Bloomberg) — US stock futures tumbled as the global stocks selloff deepened amid concerns that the Federal Reserve is moving too late to support a slowing economy, sending investors into the safety of bonds.
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Nasdaq 100 futures tumbled as much as 6.5%, coming close to triggering a circuit breaker, after the index entered a technical correction on Friday. S&P 500 contracts were down more than 2.5%. Europe’s Stoxx 600 benchmark slumped more than 2%, set for its biggest three-day decline since June 2022.
In Japan, both the Topix and Nikkei indexes fell over 13%. Taiwan’s benchmark had its worst day on record while a gauge of Asian shares slipped the most in over four years. The yen rallied more than 2.5% against the dollar.
The selloff was fueled by data Friday that showed the US jobs market weakening, which triggered a closely watched recession indicator. Investors are also fretting about elevated valuations from the artificial intelligence rally, while rising tension in the Middle East is adding to the risk-off mood. News that Berkshire Hathaway Inc. had slashed its stake in Apple Inc. by almost 50% also weighed on sentiment.
“It’s a pretty dramatic shift in narrative, which shows how much of the recent trends were backed by expectations of a US soft landing,” said Charu Chanana, head of currency strategy at Saxo Bank A/S. “The more the US soft landing assumption gets questioned, the further pullback we could see in equities.”
The 10-year Treasury yield fell five basis points to 3.74%, the lowest on a closing basis on more than a year. The two-year yield plunged 11 basis points as traders wagered the Fed may have to cut more than anticipated in Septmber. Global bonds erased their losses for the year.
Japan’s benchmark 10-year bond yield fell to its lowest since April, slipping as much as 17 basis points on Monday. The nation’s biggest lender Mitsubishi UFJ Financial Group Inc. saw its shares post their biggest intraday drop on record as the falling bond yields threatened to eat into loan margins.
The global equity declines reflected worries on the economic outlook, geopolitical risks and questions over whether heavy investment into artificial intelligence will live up to the hype surrounding the technology. Economists at Goldman Sachs Group Inc. increased the probability of a US recession in the next year to 25% from 15%, although it added there are reasons not to fear a slump.
Meanwhile, the MSCI emerging-market stock index slumped more than 3%, on track for the biggest one-day drop since March 2022.
Developing-nation currencies pushed higher – led by Malaysia’s ringgit – while the Mexican peso’s slump extended as traders continued to unwind emerging-market carry trades. The sudden appreciation in funding currencies, such as the yen and China’s yuan, have damaged the carry trade, which typically involves traders borrowing at lower rates to invest in higher-yielding assets.
Elsewhere, oil extended a decline to a seven-month low as a selloff in wider financial markets countered rising tensions in the Middle East. Israel is bracing itself for a possible attack from Iran and regional militias in retaliation for assassinations of Hezbollah and Hamas officials. Cryptocurrencies also reeled from risk aversion in global markets on Monday.
With just three Fed meetings left, swap pricing reflects the growing perception that the central bank will need to make an unusually large half-point move at one of the gatherings or act between its scheduled meetings — moving rapidly to bolster growth.
“From a Fed perspective, this does not translate into making hasty policy decisions, but it should help them remove the rose-tinted glasses when assessing policy decisions at the next meeting,” said Charlie Ripley at Allianz Investment Management.
Key events this week:
Eurozone PPI, HCOB Services PMI, Monday
US ISM Services index, Monday
Chicago Fed President Austan Goolsbee speaks, Monday
San Francisco Fed President Mary Daly speaks, Monday
Australia rate decision, Tuesday
Japan cash earnings, Tuesday
Philippines CPI, trade, Tuesday
Eurozone retail sales, Tuesday
US trade, Tuesday
New Zealand unemployment, Wednesday
China trade, Wednesday
Chile copper exports, trade, Wednesday
US consumer credit, Wednesday
ECB Supervisory Board member Elizabeth McCaul speaks, Wednesday
RBA Governor Michele Bullock speaks, Thursday
Philippines GDP, Thursday
India rate decision, Thursday
US initial jobless claims, Thursday
Richmond Fed President Thomas Barkin speaks, Thursday
Chile CPI, Thursday
Colombia CPI, Thursday
Mexico CPI, rate decision Thursday
Peru rate decision, Thursday
China PPI, CPI, Friday
Germany CPI, Friday
Canada unemployment, Friday
Brazil CPI, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 3.2% as of 8:13 a.m. London time
S&P 500 futures fell 2.8%
Nasdaq 100 futures fell 4.8%
Futures on the Dow Jones Industrial Average fell 1.7%
The MSCI Asia Pacific Index fell 6.4%
The MSCI Emerging Markets Index fell 4.4%
Currencies
The Bloomberg Dollar Spot Index was unchanged
The euro rose 0.2% to $1.0929
The Japanese yen rose 2.3% to 143.22 per dollar
The offshore yuan rose 0.4% to 7.1358 per dollar
The British pound fell 0.3% to $1.2762
Cryptocurrencies
Bitcoin fell 13% to $51,669.01
Ether fell 17% to $2,288.28
Bonds
The yield on 10-year Treasuries declined four basis points to 3.75%
Germany’s 10-year yield declined four basis points to 2.13%
Britain’s 10-year yield declined three basis points to 3.80%
Commodities
Brent crude fell 1% to $76.08 a barrel
Spot gold fell 0.6% to $2,429.36 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Winnie Hsu, Catherine Bosley and Blaise Robinson.
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