Stocks Face Pressure From Virus, Taper; Oil Falls: Markets Wrap

(Bloomberg) -- Stocks looked set to fall Monday on concerns about European Covid-19 curbs and the risk of a faster withdrawal of Federal Reserve stimulus. The Treasury yield curve was near the flattest since the pandemic’s onset.

Shares fell in Australia as did equity futures for Japan and Hong Kong, while U.S. contracts edged up. Sectors sensitive to the economic outlook led the S&P 500 lower Friday, while the technology-heavy Nasdaq 100 outperformed in an echo of the stay-at-home trade.

Treasuries rallied on Friday and the gap between yields on five-year and 30-year maturities narrowed to around the lowest since March last year. The moves reflected risk aversion as surging European infections push Austria into a lockdown and spur Germany to tighten curbs. They also followed signs that the Fed may consider a more rapid drawdown of its bond-buying program. 

Currencies including the euro, British pound and New Zealand dollar weakened against the U.S. dollar. Oil extended declines on the prospect of key consumers adding emergency supplies as well as the flareup in Covid-19 cases in Europe. Japan and the U.S. may make a joint announcement on the release of crude reserves as soon as this week, according to a report.

Global equities overall remain near records, coping with a litany of worries including a winter wave of rising coronavirus cases and high inflation that is leading central banks to tighten monetary policy. Other uncertainties include who President Joe Biden will pick as the Fed Chair nominee from Governor Lael Brainard and incumbent Jerome Powell, as well as the perennial saga over suspending or lifting the U.S. debt limit.

A trio of Fed policy makers -- Vice Chairman Richard Clarida, Governor Christopher Waller and St. Louis Federal Reserve Bank President James Bullard -- have signaled that the topic of a faster taper might be on the table when the Federal Open Market Committee meets in December.

“What we are likely to see this week is more Fed members socializing that idea of a more rapid QE taper,” Jason Schenker, president and chief economist at Prestige Economics, said on Bloomberg Television. “If that idea gets out there and is repeatedly underscored, that will increase the probability that the tapering that’s announced in December will be quicker than the pace that was announced early in November.”

In China, yuan strength will be in focus after a currency panel urged banks to limit speculative foreign-exchange trading. An adviser to the nation’s central bank said the Chinese economy could enter a period of “quasi-stagflation.” 

Elsewhere, tension between Russia and Ukraine continues. U.S. intelligence detected a buildup of Russian troops and artillery to prepare for a rapid, large-scale push into Ukraine from multiple locations if President Vladimir Putin decides to invade, according to people familiar with the conversations.

For more market analysis, read our MLIV blog.

Here are some key events this week:

• Eurozone, U.S. PMI data Tuesday
• Reserve Bank of New Zealand rate decision Wednesday
• U.S. FOMC minutes, consumer income , wholesale inventories, new home sales, GDP, initial jobless claims, U.S. durable goods, University of Michigan consumer sentiment. All Wednesday
• Bank of Korea policy decision Thursday
• U.S. Thanksgiving Day: U.S. equity, bond markets closed Thursday
• Bank of England Governor Andrew Bailey speaks with Mohamed El Erian at a Cambridge Union event. Thursday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 8:24 a.m. in Tokyo. The S&P 500 fell 0.1%
• Nasdaq 100 futures rose 0.2%. The Nasdaq 100 rose 0.6%
• Nikkei 225 futures fell 0.5%
• Australia’s S&P/ASX 200 Index fell 0.5%
• Hang Seng Index futures lost 0.4% earlier

Currencies

• The Japanese yen was at 114.07 per dollar, down 0.1%
• The offshore yuan traded at 6.3928 per dollar
• The Bloomberg Dollar Spot Index rose 0.4%
• The euro was at $1.1272, down 0.2%

Bonds

• The yield on 10-year Treasuries declined four basis points to 1.55%
• Australia’s 10-year bond yield fell about two basis points to 1.80%

Commodities

• West Texas Intermediate crude fell 0.9% to $75.28 a barrel
• Gold was at $1,843.26 an ounce, down 0.1%

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