(Bloomberg) — European stocks fell and U.S. index futures were mixed as an earnings-driven rally stalled amid a deepening supply crunch and coronavirus curbs in China. The Treasury yield curve steepened before the Federal Reserve’s policy meeting.
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December contracts on the Dow Jones Industrial Average slipped after the underlying gauge surged past the 36,000 mark on Monday. Russell 2000 contracts rose. The yield on the 30-year U.S. bond widened its gap with the two-year rate by three basis points. Iron-ore futures tumbled on shrinking steal output in China. Tesla Inc. led premarket losses in New York.
Bond and currency markets are bracing for the Fed to announce a tapering of asset purchases as an initial step to eventually raising interest rates to contain inflation. Equity markets, on the other hand, are focusing on earnings growth and valuations. Meanwhile, mixed data on the global economic revival is further clouding the picture as the pandemic is making a comeback in parts of the world.
“We expect volatility in financial markets to remain high as not only the Fed, but other central banks around the world, extract liquidity to combat the rise in inflation,” Lon Erickson, portfolio manager at Thornburg Investment Management, wrote in a note. Despite Fed rhetoric, “we’ve started to see the market price in earlier policy rate moves, perhaps losing confidence in the ‘transitory’ nature of inflation.”
Both the S&P 500 Index and the Dow have been scaling new peaks as U.S. companies post another stellar quarter for earnings. Of the 295 companies in the equity benchmark that have reported results, 87% have either met or surpassed estimates.
Yet, investors have begun to question the sustainability of this rally as a post-pandemic supply crunch stokes inflation and pushes central banks to tighten monetary policy. Economic recovery is also under strain as countries from China to Bulgaria report rising Covid cases.
Europe’s Stoxx 600 gauge slipped from a record high as miners and travel companies posted some of the biggest losses. Flutter Entertainment Plc lost more than 8%, after the gambling-services provider warned annual profits outside of the U.S. may come in less than expected.
In New York premarket trading, Tesla fell 6% after Elon Musk said the carmaker’s deal with Hertz Global Holdings Inc. was not done yet.
In Australia, the central bank scrapped its bond-yield target. The nation’s currency dropped after Governor Philip Lowe said it was still “likely to take some time” for inflation to sustainably return to target.
Elsewhere, iron-ore futures extended losses below $100 a ton on expectations of lower Chinese steel output. West Texas Intermediate oil edged higher, trading above $85 a barrel.
Here are some events to watch this week:
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Fed rate decision, U.S. factory orders and durable goods, Wednesday
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OPEC+ meeting on output, Thursday
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Bank of England rate decision, Thursday
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U.S. trade, initial jobless claims, Thursday
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U.S. unemployment, nonfarm payrolls, Friday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 0.2% as of 9:16 a.m. London time
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Futures on the S&P 500 were little changed
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Futures on the Nasdaq 100 fell 0.2%
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Futures on the Dow Jones Industrial Average were little changed
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The MSCI Asia Pacific Index fell 0.1%
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The MSCI Emerging Markets Index was little changed
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.1596
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The Japanese yen rose 0.4% to 113.52 per dollar
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The offshore yuan was little changed at 6.3938 per dollar
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The British pound fell 0.2% to $1.3644
Bonds
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The yield on 10-year Treasuries was little changed at 1.55%
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Germany’s 10-year yield declined four basis points to -0.14%
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Britain’s 10-year yield declined three basis points to 1.03%
Commodities
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