US equity futures fell and European stocks wavered at the start of a week in which inflation and interest rates will be in focus after soft price data raised fresh worries about China’s economic recovery.
Traders will look to US inflation numbers on Wednesday for signals on the Federal Reserve’s likely policy path and the rising risk of a recession. UK jobs data Tuesday will also be crucial in determining the Bank of England’s next policy decision in August.
US Treasury Secretary Janet Yellen said on the weekend she wouldn’t rule out the threat of a US recession, noting that it was “appropriate and normal” for growth to moderate and that inflation remains too high.
“Everyone is looking at inflation or has been looking at inflation for a long time,” Nicolo Bocchin, global head of fixed income at Azimut Group, said on Bloomberg Television. “Now it’s time to look at growth.”
The Stoxx Europe 600 index flcutuated after its biggest weekly drop since mid-March. Miners were among the leading decliners, with Rio Tinto Group falling more than 1% after its chairman warned of headwinds from China for raw materials including iron ore. Bayer AG rose as much as 3.2% after a report that the pharmaceutical company is planning to spin off its agricultural chemicals business.
Futures on the S&P 500 and Nasdaq 100 were down about 0.3% and 0.4% respectively after most American equities dropped Friday when wage data showed inflation remained a threat.
Treasury yields were little changed, with the two-year remaining below 5%, and the 10-year just above 4%. A gauge of the dollar was flat.
An Asia equity benchmark slipped for a fourth day, heading for the lowest close in more than a month. Shares in Hong Kong and mainland China pared gains after Chinese data showed further declines in factory-gate prices while core inflation slowed. The offshore yuan swung to a loss after the data.
Traders had initially focused on optimism that a crackdown by Beijing on Chinese tech companies was nearing an end, sending the Hang Seng Tech Index up as much as 3.2%, before trimming its advance.
“It is clear that China is facing excess supply now,” said Zhaopeng Xing, senior China strategist at Australia & New Zealand Banking Group Ltd. “Demand side policies will be in need,” with the focus now shifting to expectations of fiscal stimulus before China’s July Politburo meeting, he said.
US jobs data last week damped speculation the Fed would leave interest rates unchanged this month. The outlook beyond that is unclear. Payroll figures fell short of estimates but brought signs that wage inflation remains a threat to the Fed’s fight against price gains.
Traders will also be closely watching this week’s US consumer prices data. Bloomberg economists are expecting the headline number to fall to 3.1%, though they don’t see that stopping the Fed hiking at its meeting later this month.
Downside surprises in this week’s inflation indicators could charge up the bulls, taking the S&P 500 above the channel, according to Ed Yardeni, president of his namesake research firm. “On the other hand, higher-than-expected inflation readings could heighten fears that the Fed will have to tighten monetary policy to cause a recession as the only clear way to bring inflation down.”
Oil edged lower Monday after two consecutive weekly increases, and gold was steady.
Key events this week:
Some of the main moves in markets:
Stocks
Currencies
Cryptocurrencies
Bonds
Commodities
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Abhishek Vishnoi, Ran Li and Tassia Sipahutar.
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