US index futures and European stocks fall as investors weighed the prospects of a quicker withdrawal of monetary stimulus and the economic impact of renewed lockdowns.
December contracts on the S&P 500 Index falls 0.4% after the underlying gauge posted
a last-hour decline. A rout
in technology shares that spurred those losses echoed in a 0.6% drop in Nasdaq 100 futures. The Stoxx 600 tumbled the most in six weeks on a report the European Central Bank is serious about ending emergency support.
Commodity markets went into a tizzy as oil posted losses with countries from US to India looking to tap their strategic reserves. Iron ore rallied on bets for a turnaround in Chinese demand. Natural gas rebounded.
Investors are liquidating their bets for a deeper dovish stance by the Federal Reserve after the reappointment of Jerome Powell as its chair. Powell himself sought to strike a balance in his policy approach saying the central bank would use tools at its disposal to support the economy as well as to prevent inflation from becoming entrenched.
“While investors no longer have to wonder about who will be leading the Federal Reserve for the next few years, the next big dilemma the central bank faces is how to normalize monetary policy without upsetting markets,” Robert Schein, chief investment officer at Blanke Schein Wealth Management, wrote in an email.
Most US Treasuries traded flat, with the 10-year yield little changed at 1.62%, though the two-year rate was four basis points higher. The dollar was steady near its highest level since September 2020. The Japanese yen falls past 115 per dollar for the first time since 2017, before reversing losses.
Fed Bank of Atlanta President Raphael Bostic said the US central bank may need to speed up removal of monetary stimulus in response to strong employment gains and surging inflation, allowing for an earlier-than-planned increase in interest rates.
Following Powell’s renomination, “the market has unwound hedges against a more ‘dovish’ personnel shift,” Chris Weston, head of research with Pepperstone Financial Pty Ltd., wrote in a note. He flagged the possibility of volatility in December if financial conditions tighten.
Meanwhile, Francois Villeroy de Galhau, a member of the European Central Bank’s governing council, said the monetary authority is “serious” about ending its emergency bond-buying program in March and may not need to expand regular asset purchases to cover the shortfall.
Elsewhere, iron ore extended a rebound from an 18-month low on bets stronger-than-expected steel output cuts mean China’s steel mills are primed to lift volumes next month.