Global stocks are sliding on anxiety that seems exhausted: markets turning

(Bloomberg) — Stocks fell on Monday as concerns about the global economy and the path of interest rates sapped steam from a sharp rally in the second quarter.

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The decline in Europe extended to all industries except banking and energy companies. Among the largest companies moving people, Sartorius AG fell 15% after issuing a warning about larger-than-expected earnings. In Asia, disappointed hopes for more stimulus have pushed Chinese tech companies back.

With increasing uncertainty about the path of prices, traders oscillate between the temptation of a rally and fears that it has been exhausted and that the market has become overbought.

The rally on Wall Street has now erased more than a year of losses inflicted by the Fed, as equities, volatility and the dollar have weathered the impact of 10 rate hikes. The S&P 500 capped its fifth consecutive week of gains and is now higher than it was on the day the Fed launched its campaign.

“Perhaps optimism, or perhaps just caged pessimism, is the strongest theme in global markets right now,” Giles Gill, pricing analyst at NatWest Markets, wrote in a note. “Inflation looks surprisingly well behaved despite the Fed’s subdued protests. Europe is likely to drift along a risk-off path, but with steadier inflation.”

US stock and bond markets are closed on Monday for a holiday. S&P 500 and Nasdaq 100 futures changed little.

Read more: Wall Street rally wipes away a year of Fed-led losses

Looking ahead, Federal Reserve Chairman Jerome Powell will present his semi-annual report to Congress on Wednesday. Speakers this week include St. Louis Federal Reserve President James Bullard and his counterparts in New York and Chicago.

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Federal Reserve policymakers kept interest rates unchanged at their latest meeting but warned of further tightening ahead. In the past, a three-month pause in rate hikes after a series of such rate hikes boosted stock prices.

The decision to keep interest rates last week came with expectations of an increase in borrowing costs by 5.6% in 2023, which means an interest rate increase of a quarter point or an increase of half a point before the end of the year.

“Markets are still pricing in a lower interest rate path compared to the Fed’s point chart,” said Janet Moye, head of market analysis at RBC Brewin Dolphin. As we approach peak rates, it is uncertain how long rates will remain high. Markets have a more pessimistic lens on that.”

Elsewhere, the UK’s short-term borrowing costs rose to 5% for the first time since the global financial crisis amid fears that alarming inflation expectations could lead to more aggressive monetary tightening from policymakers.

Read more: UK short-term borrowing costs hit 5% for the first time since 2008

Chinese tech companies have slumped as Alibaba Group Holding Ltd and JD.com Inc. and Baidu Inc. All by more than 3% to pull Hang Seng Tech up 2.9%.

Investors were on edge for China’s cabinet to announce new stimulus after Friday’s meeting, but it did not announce any specific proposals. The lack of tangible evidence of support adds to concerns about a slowing economy, unnerving investors who bid on Chinese stocks last week hoping for a package deal.

Main events this week:

• June US holiday, Monday

• China loan initial interest rates, tuesday

• Residences begin in the US, Tuesday

• Louis Federal Reserve Bank of St. Louis President James Bullard speaks, Tuesday

• New York Federal Reserve Bank President John Williams speaks on Tuesday

• Federal Reserve Chairman Jerome Powell delivers semi-annual congressional testimony before the House Financial Services Committee, Wednesday

• Chicago Federal Reserve President Austin Goolsby speaks Wednesday

• Eurozone Consumer Confidence, Thursday

• Price decisions in the UK, Switzerland, Indonesia, Norway, Mexico, the Philippines and Turkey on Thursday

• The leading indicator of the US Congressional Council, Initial Jobless Claims, Current Account, Existing Home Sales, Thursday

• Federal Reserve Chairman Jerome Powell delivers semi-annual congressional testimony before the Senate Banking Committee, Thursday

• Cleveland Federal Reserve’s Loretta Mester speaks Thursday

• Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday

• Japanese CPI, Friday

• S&P Global / CIPS UK Manufacturing PMI, Friday

• Standard & Poor’s Global Manufacturing Index in the US, Friday

• Louis Federal Reserve Bank of St. Louis President James Bullard speaks on Friday

Some of the major movements in the markets:

Stores

• The Stoxx Europe 600 Index is down 0.7% as of 1:30pm London time.

• S&P 500 futures fell 0.1%

• Nasdaq 100 futures fell 0.1%.

• Dow Jones Industrial Average futures fell 0.1%.

• The MSCI Asia Pacific Index fell 0.7%.

• The MSCI Emerging Markets Index fell 0.7%.

currencies

• The Bloomberg Spot Dollar Index rose 0.1%.

• The euro fell 0.1 percent to $1.0925

• The Japanese yen was little changed at 141.81 per dollar

• The offshore yuan fell 0.5 percent to 7.1630 per dollar

• The British pound has not changed much at $1.2810

Digital currencies

• Bitcoin rose 0.2% to $26,523.5

• Ether hasn’t changed much at $1,730.2

bonds

goods

• Brent crude rose 0.2 percent to $76.77 a barrel

• Spot gold fell 0.3 percent to $1,951.85 an ounce

This story was produced with help from Bloomberg Automation.

— With assistance from Sagarika Jaisinghani and Denitsa Tsekova.

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