U.S. equity-index futures and Treasuries fell as investors worried about the prospects of interest rates staying higher for longer and a deepening of geopolitical tensions.
Contracts on the S&P 500 and Nasdaq 100 indexes dropped at least 0.9% each as U.S. traders returned from a holiday. European stocks drifted lower as Bank of America Corp. to JPMorgan Chase & Co.
A start-of-the-year rally in global stocks has fizzled, and the dollar resumed gains, after central bankers reaffirmed their will to combat inflation. That, and a stubborn trend in prices, have pushed traders to factor in another 75 basis points of rate hikes by the Federal Reserve by July. They also pruned their bets for the first US rate cut: swaps now expect a 20 basis-point reduction by year-end, compared with a 50 basis-point move seen earlier this month.
"The Fed are not signaling they will do anything different from what they have always said — but earlier, markets did not believe them," said Fahad Kamal, chief investors officer at SG Kleinwort Hambros Bank. "The market was far too complacent at start of the year thinking there'll be a pivot. Now the data has come in stronger, and the Fed hasn't changed what they said. So we got a big rally earlier and then a bit of reversal."
A gauge of the dollar's strength rose for the first time in three days, trading above its 50-day moving average. Yet technical patterns suggest the greenback isn't fully out of the woods yet. While the Bloomberg Dollar Spot Index is heading for the best monthly gain since September, it has just completed the so-called "death cross" between its 100-day and 200-day averages, signaling the downtrend remains intact.
The Stoxx 600 was dragged by technology and consumer stocks. The gauge will end the year 2% lower than Friday's close, according to the average target in a Bloomberg survey of forecasters. Bank of America Corp. strategist Milla Savova said a temporary boost to the region's economy will fade as the full impact of monetary tightening materializes, while earnings forecasts will get downgraded.
In New York premarket trading, JD.com tumbled 8.5%
The Japanese 10-year yield briefly rose above the central bank's 0.5% yield curve control target for the first time since January. Investors are readying to hear from Kazuo Ueda, the nominee for the Bank of Japan governorship, who is due to face confirmation hearings in parliament on Friday.
Brent crude-oil futures slid as investors weighed the possibility of further monetary tightening against signs of improving demand from China. A gain in West Texas Intermediate futures reflected catch-up trades as there had been no settlement on Monday.
