Stocks retreated on Tuesday as worries over high inflation and the risk of recession returned to the market in force, driving commodity prices lower and strengthening the dollar against other currencies.
Futures for the Dow Jones Industrial Average slid 160 points, or 0.5%, after the index lost 164 points Monday to close at 31,173. S&P 500 futures signaled a start 0.5% into the red with the tech stock-heavy Nasdaq poised to slip 0.6%.
Overseas, the pan-European Stoxx 600 shed 0.4% and Hong Kong’s Hang Seng Index fell 1.3%, with Asian indexes broadly in the red amid a renewed surge of Covid-19 cases in China and the prospect of fresh lockdowns.
Having made slow and steady gains since the beginning of July, stocks are sliding back this week amid the return of familiar fears—inflation at a multi-decade high and the prospect of an economic slowdown as interest rates are cranked higher. Few catalysts for the market are expected in the day ahead.
Sentiment has “become more gloomy once again as investors looked forward to multiple data releases and earnings reports this week that’ll set the stage for some important central bank meetings,” said Jim Reid, a strategist at Deutsche Bank. U.S. inflation “will be the main highlight tomorrow.”
The Federal Reserve has already moved aggressively in hiking interest rates this year as it faces the highest inflation in decades. The risk is that continuing to tighten monetary policy could damp economic demand to the point of causing a recession.
Against that backdrop, fresh indications of the inflation picture and new signs of how companies are grappling with the economic outlook will be important in predicting the Fed’s pathway. Clear hiccups in the U.S. economy revealed by corporate earnings could push the central bank to be more cautious.
The headliner will be U.S. consumer-price inflation (CPI) data released Wednesday, which is expected to show that it remains red hot with prices up 8.8% year-over-year. Thursday marks the first major wave of the latest quarterly earnings season as financial giants JPMorgan Chase (ticker: JPM) and Morgan Stanley (MS) report results, before Citi (C) and BlackRock (BLK) on Friday.
Worries over the world economy have sent prices for commodities including oil and copper tumbling. Futures for copper—a ubiquitous industrial metal often viewed as a bellwether—dropped 2% to below $3.40, the lowest level in two years. Futures for U.S. benchmark West Texas Intermediate crude shed 2% to below $102 per barrel, with oil prices also being pulled around amid geopolitical tensions between the West and Russia.
“Although deteriorating growth in economies would be a downwards force on the oil price, fresh attempts to limit Russia’s financial power, by imposing a price cap on its crude exports, could distort markets further adding to volatility,” said Susannah Streeter, an analyst at broker Hargreaves Lansdown .
This environment has continued to strengthen the U.S. dollar, which has gained 13% so far this year against a basket of six peers. The euro is among the biggest fallers among major currencies, down 12% in 2022 and approaching parity on Tuesday, hovering below $1.01.
“It’s been on the slide for months but the euro took a fresh low as fears mount Russia could cut off gas supplies to Europe this winter,” said Neil Wilson, an analyst at broker Markets.com. “The European Central Bank is fiddling while the currency burns, causing worse inflation and more misery for the population.”
Here are four stocks on the move Tuesday:
Amid a renewed slide in Bitcoin prices—the largest cryptocurrency dropped 4% in the last 24 hours to below $20,000—shares in companies exposed to digital assets fell. Cryptocurrency exchange Coinbase Global (COIN) slid 3% in the premarket with software group MicroStrategy (MSTR), which has significant Bitcoin holdings on its books, 3.5% lower. Digital payments groups PayPal (PYPL) and Block (SQ) lost 1% and 1.5%, respectively.
Write to Jack Denton at email@example.com