U.S. stock futures decline on China worries as Fed kicks off deliberations

What’s driving markets

China’s at the heart of two stories that worry investors. U.S. and Chinese officials met in Rome on Monday, with little apparent agreement, as American negotiators said Russia was looking to circumvent sanctions by procuring Chinese arms. U.S. officials have threatened to also sanction China.

At the same time, China’s been fighting a coronavirus outbreak, tightening controls at ports a day after locking down the tech and finance hub of Shenzhen.

“In terms of catalysts, it is a bit of a perfect storm, with a sharp rise in COVID cases in China and implications for demand and supply chains and further worries about the China-Russia relationship and possible sanctions if China was to provide support to Russia visibly,” said Stephen Innes, managing partner at SPI Asset Management.

The Hang Seng
HSI,
-5.72%
slumped 6% in Hong Kong, and the Shanghai Composite
SHCOMP,
-4.95%
dropped 5%.

The Federal Reserve kicks off its two-day meeting, where it’s expected to make a quarter-point rate increase. The Fed will be eyeing wholesale inflation data due for release on Tuesday morning.

The Dutch bank ABN Amro is expecting seven quarter-point rate hikes this year, and another three next year.

“Despite the growth dampening effects of higher commodity prices, the conflict makes the case even stronger for rate hikes, rather than weaker,” said Bill Diviney, senior economist at ABN Amro.