Stocks Face Pressure From Virus, Fed Taper Risks: Markets Wrap

On Nov 21, 2021

(Bloomberg) — Stocks looked set to fall Monday on concerns about European Covid-19 curbs and the risk of a faster withdrawal of Federal Reserve stimulus. The Treasury yield curve was near the flattest since the pandemic’s onset.

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Equity futures for Japan, Australia and Hong Kong fell. Sectors sensitive to the economic outlook led the S&P 500 lower Friday, while the technology-heavy Nasdaq 100 outperformed in an echo of the stay-at-home trade.

Treasuries rallied on Friday and the gap between yields on five-year and 30-year maturities narrowed to around the lowest since March last year. The moves reflected risk aversion as surging European infections push Austria into a lockdown and spur Germany to tighten curbs. They also followed signs that the Fed may consider a more rapid drawdown of its bond-buying program.

The dollar was steady against major peers early Monday. In China, yuan strength will be in focus after a currency panel urged banks to limit speculative foreign-exchange trading. An adviser to the nation’s central bank said the Chinese economy could enter a period of “quasi-stagflation.”

Global equities overall remain near records, coping with a litany of worries including a winter wave of rising coronavirus cases and high inflation that is leading central banks to tighten monetary policy. Other uncertainties include who President Joe Biden will pick as the Fed Chair nominee from Governor Lael Brainard and incumbent Jerome Powell, as well as the perennial saga over suspending or lifting the U.S. debt limit.

“Continuing inflation and interest-rate concerns will likely result in rougher and more constrained gains than what we’ve seen since March last year,” Shane Oliver, head of investment strategy and chief economist at AMP Capital, wrote in a note.

A trio of Fed policy makers — Vice Chairman Richard Clarida, Governor Christopher Waller and St. Louis Federal Reserve Bank President James Bullard — have signaled that the topic of a faster taper might be on the table when the Federal Open Market Committee meets in December.

Traders are also monitoring the retreat in oil prices. Japan and the U.S. may make a joint announcement on the release of crude reserves as soon as this week, according to a report.

Elsewhere, tension between Russia and Ukraine continues. U.S. intelligence detected a buildup of Russian troops and artillery to prepare for a rapid, large-scale push into Ukraine from multiple locations if President Vladimir Putin decides to invade, according to people familiar with the conversations.

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

The S&P 500 fell 0.1%
The Nasdaq 100 rose 0.6%
Nikkei 225 futures fell 0.5%
Australia’s S&P/ASX 200 Index futures fell 0.6%
Hang Seng Index futures lost 0.4% earlier

Currencies

The Japanese yen was at 113.92 per dollar
The offshore yuan traded at 6.3914 per dollar
The Bloomberg Dollar Spot Index rose 0.4%
The euro was at…