Stocks are back in the red Tuesday as rate hike and recession worries, as well as a surprise bond market intervention from the Bank of England, continue to clip sentiment.
U.S. equity futures moved lower again Tuesday, pulling tech stocks deeper into a two-year trough, as investors extend their retreat from risk markets amid concern that aggressive central bank rate hikes will tip the global economy into recession.
That risk was articulated yesterday by JPMorgan Chase JPM CEO Jamie Dimon, who told CNBC in London that a U.S. recession was possible “six to nine months from now” as a result of the generational surge in inflation, central bank tightening and the spillover impact of Russia’s war on Ukraine.
Rate traders aren’t paring bets on a big Fed rate hike in November, however, even with recession concerns looming, with the CME Group’s FedWatch indicating a 78.8% chance of a 75 basis point increase, the fourth in succession.
Fed Vice Chair Lael Brainard, in fact, told a conference in Chicago yesterday that “monetary policy will be restrictive for some time, until there is confidence inflation comes down”, although she conceded that the “actual policy path will be data-dependent.”
Still, Dimon’s warning, a further escalation of Russia’s military assault on Ukraine and a further extension of China’s ‘zero Covid’ policies following the country’s week long October holidays pushed investors back into the U.S. dollar, which gained another 0.1% against its global peers, and added downward pressure on world stock indices, which collectively slumped back to the lowest levels in more than two years in overnight trading.
Oil markets were also in retreat, with WTI futures falling $2.45 in overnight trading to $88.68 per barrel after China accelerated its Covid testing programs in Shanghai and elsewhere, suggesting a further pullback in demand from the world’s biggest energy importer.
Overnight in Asia, tech stocks once again lead regional declines following last week’s move by the Biden administration to tighten rules on semiconductor technology exports.
The region-wide MSCI ex-Japan benchmark fell 2.1% into the final hours of trading, while the Nikkei 225 was marked 2.65% lower on the session in Tokyo.
In Europe, the region-wide Stoxx 600 index was down 0.66% with Britain’s FTSE 100 down 0.9% following another step-up in overnight bond buying from the Bank of England.
The BoE said it would buy an additional $5.5 billion of inflation-linked government bonds each day, alongside its already-increased purchases of $5 billion in conventional government debt — known in the U.K. as gilts — as part of its financial stability mandate.
“The beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts,” the BoE said in a statement. “Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability.”
The pound was holding firm at 1.1066 against the U.S. dollar following the BoE’s Tuesday intervention, while benchmark 10-year gilt yields fell 47 basis points to 4.435%.
On Wall Street, futures tied to the S&P 500 are indicating a 19 point opening bell decline, while those linked to the Dow Jones Industrial Average are priced for an 95 point pullback. Contracts tied to the tech-focused Nasdaq, which closed at a July 2020 low last night, are indicating another 56 point decline.
In terms of individual stocks, Nvidia (NVDA) – Get NVIDIA Corporation Report shares were a notable pre-market mover, falling 1.5% amid a spate of analyst downgrades and broader sector repricing following last week’s move by the Biden administration to restrict tech exports to China.
Amazon (AMZN) – Get Amazon.com Inc. Report shares moved lower in pre-market trading ahead of the online retail giant’s two-day “Prime Early Access Sale” that effectively fires the starting gun on an early U.S. holiday shopping season.
Marvell Technology (MRVL) – Get Marvell Technology Inc. Report shares, meanwhile, edged 0.5% higher after analysts at Wells Fargo boosted their rating on the the chipmaker, citing its insulation from macro trends that are hitting the broader semiconductor sector.
