U.S. stocks slumped Monday following a testy exchange between Secretary of State Michael Pompeo and Chinese officials during a meeting in Beijing, while European shares declined amid Italy’s continued defiance of EU officials over the budget proposed by the new populist government. The dollar rose as Treasuries took a holiday before a busy week of debt sales.
All major American benchmarks were down following the worst week in a month for U.S. equities amid a rout in Treasuries. The U.S. bond market is closed Monday because of the Columbus Day holiday. The S&P 500 Index was on track for its third straight loss and lowest close in a month, while the Nasdaq 100 Index was at its lowest since Aug. 1 and the small-cap Russell 2000 index was the weakest since May. The dollar gained versus most major peers except the yen.
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Emerging market stocks fell despite a rally in Brazil as far-right Army Captain and investor favorite Jair Bolsonaro took an overwhelming lead in the first round of the nation’s presidential election. China’s yuan weakened following a policy move by monetary authorities and overseas investors dumped 9.7 billion yuan, or $1.4 billion, of A shares through exchange links with Hong Kong. South Africa’s rand slipped on reports the finance minister sought to resign.
In Europe, traders focused their attention on Italy, where the nation’s 10-year bond yield ratcheted up to a four-year high and banking stocks sold off as the populist-led government refused to bow to EU criticism over its planned budget. Italy’s struggle and further weakness in German industrial data added to pressure on the euro.
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Investors are watching moves in the biggest economies for directional signals this week, after China’s central bank cut the amount of cash lenders must hold as reserves, seeking to shore up output amid a worsening trade war. In the U.S., investors are gearing up for $230 billion of Treasury auctions this week following a selloff last week that took 10-year yields to the highest level since 2011 and helped sap interest in many equities markets.
“I think what we’re looking at here is at least a modest pullback in equity markets until bond yields stop going up,” James Barty, head of global cross-asset strategy at Bank of America Merrill Lynch, said on Bloomberg Television. “It’s a bit like in January and February — the equity markets initially ignored the move in bond markets.”
Elsewhere, benchmark WTI oil futures slid toward $73 a barrel. Aluminum tumbled after Norsk Hydro ASA reversed a decision to close the world’s biggest alumina refinery, adding to supply issues.
Here are some key events coming up this week:
The U.S. Treasury has $230 billion worth of debt auctions this week. The IMF presents its World Economic Outlook on Tuesday. U.S. President Donald Trump holds the latest in a series of rallies ahead of the Nov. 6 congressional elections. A closely watched gauge of U.S. consumer prices probably remained elevated in September and rose 2.3 percent from a year earlier, according to forecasts ahead of Thursday’s release. JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. kick off earnings season for U.S. banks on Friday.These are the main moves in markets:
Stocks
The S&P 500 was down 0.3 percent to 2,876.80 as of 9:38 a.m. in New York. The Stoxx Europe 600 Index decreased 1.5 percent to the lowest in six months. Italy’s FTSE MIB Index declined 2.5 percent to the lowest since April 2017. The MSCI Emerging Market Index fell 0.7 percent to the lowest in almost 17 months. The MSCI All-Country World Index declined 0.5 percent to the lowest in more than seven weeks.
Currencies
The dollar gained 0.3 percent. The euro fell 0.4 percent. The offshore yuan declined 0.1 percent, hitting the weakest in 21 months with its sixth straight decline and the largest fall in a week. The British pound dipped 0.5 percent to $1.3048, the biggest dip in more than a week. The Japanese yen gained 0.3 percent to 113.41 per dollar, the strongest in more than a week. South Africa’s rand sank 0.7 percent to 14.875 per dollar, the weakest in almost three weeks.
Bonds
The yield on 10-year Treasuries was unchanged at 3.23 percent as the U.S. bond market was closed for a national holiday. The yield on two-year Treasuries was unchanged at 2.89 percent, the highest in more than 10 years. Germany’s 10-year yield fell four basis points to 0.53 percent. Italy’s 10-year yield rose 18 basis points to 3.599 percent, the highest in more than four years on the biggest rise in more than a week.
Commodities
The Bloomberg Commodity Index declined 0.3 percent to the lowest in a week. West Texas Intermediate crude fell 0.9 percent to $73.65 a barrel, the lowest in more than a week. LME copper dipped 0.1 percent to $6,167.50 per metric ton, the lowest in more than two weeks. Gold sank 1.4 percent to $1,186.45 an ounce, the weakest in more than a week on the biggest tumble in almost eight weeks.
