Stocks, Futures Begin New Quarter on Risk-Off Note: Markets Wrap

(Bloomberg) — The first day of the final quarter of 2021 failed to bring cheer to investors who balked at the growing wall of worry from Federal Reserve tapering to stagflation and setbacks for U.S. President Joe Biden’s big spending plans.

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Futures on the S&P 500 and Nasdaq 100 indexes lost 0.5% each after the underlying gauges ended September with the biggest slides since March 2020. European stocks headed for the worst weekly plunge since January. Occidental Petroleum Corp. led premarket losses in New York as oil’s rally stalled.

As investors brace for the Fed to wind down its stimulus, fears are mounting about slowing economic growth, elevated inflation, supply-chain bottlenecks, a global energy crunch and regulatory risks emanating from China. A short-term deal that averted a U.S. government shutdown was dwarfed by concern the crisis could return in weeks and also delay Biden’s $4 trillion economic vision.

“A rocky start to the quarter is inherited from the wobble in U.S. equities amid a patchwork approach to avoiding a fiscal cliff conspiring with rising fears of inflationary shocks accentuated by the scramble for energy,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. “The threat is not merely interrupted growth/recovery but rather self-inflicted pain amplification between U.S. fiscal fumbles and China’s regulatory agitation.”

The dollar was steady Friday, after a two-month rally driven by the Fed’s hawkish tilt. While the macro risks are driving investors to the safety of the greenback, the currency is also benefiting from policy divergence, as prospects of U.S. monetary tightening contrast with the ultra dovishness of the European Central Bank.

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Europe’s Stoxx 600 gauge extended losses as 19 of its 20 industry subgroups declined. A continent-wide energy crunch worsened, with benchmark natural-gas futures briefly surging to a record 100 euros ($116) per megawatt-hour. The contract later traded 2.5% down.

Occidental Petroleum dropped 2% in early New York trading. West Texas Intermediate crude failed to hold above the $75-per-barrel mark, while Brent futures headed for a weekly loss. Some trades speculated the upward pressure on prices may return after China ordered its state-owned companies to secure energy supplies at all costs.

Shares slumped in Japan and Australia, and a gauge of Asian stocks hit its lowest in more than a month. China began a week-long holiday and Hong Kong’s market was shut Friday.

Treasuries were steady, with the 10-year yield holding below 1.50%. Bitcoin extended recovery, trading around $44,800 apiece.

Here are some events to watch this week:

• Univ. of Michigan sentiment, ISM manufacturing, U.S. construction spending, spending/personal income, Friday

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 0.7% as of 10:13 a.m. London time

• Futures on the S&P 500 fell 0.5%

• Futures on the Nasdaq 100 fell 0.5%

• Futures on the Dow Jones Industrial Average fell 0.6%

• The MSCI Asia Pacific Index fell 1.1%

• The MSCI Emerging Markets Index fell 0.6%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.1579

• The Japanese yen rose 0.2% to 111.09 per dollar

• The offshore yuan rose 0.2% to 6.4373 per dollar

• The British pound was little changed at $1.3483

Bonds

• The yield on 10-year Treasuries was little changed at 1.49%

• Germany’s 10-year yield declined three basis points to -0.23%

• Britain’s 10-year yield declined two basis points to 1.00%

Commodities

• Brent crude fell 0.6% to $77.81 a barrel

• Spot gold fell 0.1% to $1,754.48 an ounce

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