Stocks May Extend Drop on Fed Tightening Concerns: Markets Wrap

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(Bloomberg) — Stocks looked set for further declines Monday amid concerns about tightening Federal Reserve monetary policy, while a cryptocurrency plunge highlighted waning investor appetite for risk.

Futures for Japan, Australia and Hong Kong fell following one of the worst stretches for global shares last week since the onset of the pandemic. The dollar was steady against key peers in early Asian trading.

The Fed on Wednesday is expected to signal a liftoff in interest rates from March and balance-sheet reduction later this year. Ebbing stimulus is forcing a rethink about the economic and market outlook.

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How the policy shift will affect fixed income is among the key questions. Treasuries initially slumped at the start of last week before rallying sharply to leave the 10-year yield just above 1.75%.

In the volatile cryptocurrency sector, Bitcoin was trading around $35,000 in the wake of a plunge over the past three days. Digital coins have shed more than $1 trillion in value since a November high.

Aside from the Fed, earnings updates from titans such as Apple Inc. will shape sentiment too following an uneven start to the reporting season. Technology stocks have borne the brunt of an equity selloff this year, while some less richly valued parts of the market have held up better.

There is “likely a longer term rotation toward value stocks measured in quarters, not weeks” unfolding, Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, wrote in a note. He added “investors should retain a balanced view, staying patient in committing new capital to equities.”

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Ahead of the Fed meeting, Goldman Sachs Group Inc. economists said they see a risk the central bank will tighten policy at every meeting from March — a more aggressive approach than the Wall Street bank currently anticipates.

Elsewhere, a commodities gauge remains near a record level, powered in part by a rally in crude oil that’s helping to stoke global economic price pressures.

Meanwhile, traders are monitoring US-Russia tension over Ukraine. Russia is continuing a military buildup, sending troops and armor to within a few miles of the Ukrainian border in neighboring Belarus for joint military drills that start Feb. 10. Russia denies that it’s planning a further invasion into Ukraine.

For more market analysis, read our MLIV blog.

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What to watch this week:

Earnings reports are due from companies including Apple, Boeing, GE, 3M, Deutsche Bank, Microsoft, Samsung Electronics and TeslaPMIs for Eurozone, France, Germany, UK and Australia, MondayAustralia CPI, TuesdayFederal Reserve rate decision and Chair Jerome Powell news conference, WednesdayBank of Canada interest-rate decision, WednesdayEIA crude oil inventory report, WednesdayU.S. fourth-quarter GDP growth data, plus US initial jobless claims and durable goods, ThursdayU.S. consumer income, University of Michigan consumer sentiment figures, Friday

Some of the main moves in markets:

Stocks

The S&P 500 fell 1.9%The Nasdaq 100 fell 2.8%Nikkei 225 futures declined 1.3%S&P/ASX 200 futures shed 0.7%Hang Seng futures lost 0.9%

Currencies

The Bloomberg Dollar Spot Index fell 0.1%The euro was at $1.1345The Japanese yen was at 113.66 per dollarThe offshore yuan was at 6.3426 per dollar

Bonds

The yield on 10-year Treasuries declined five basis points to 1.76%

Commodities

West Texas Intermediate was at $85.14 a barrelGold was at $1,835.38 an ounce

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