US Stocks to Extend Losses as Volatility Spikes: Markets Wrap

(Bloomberg) — US stocks were set to deepen losses as traders grappled with an increasingly softening outlook for interest-rate cuts and the threat of an American government shutdown. 

The S&P 500 was heading for its biggest weekly drop since at least September as futures tied to the benchmark dipped 0.9%. Nasdaq 100 contracts fell 1.4%, with technology stalwarts such as Tesla Inc. and Nvidia Corp. giving way in early trading. Europe’s Stoxx 600 weakened 1.7% as Novo Nordisk A/S fell by the most on record on the back of disappointing data from a treatment trial.

Stock market volatility has spiked in recent days as a hawkish pivot by the Federal Reserve made traders question whether this year’s tech-fueled rally could extend further in a higher rates environment, despite a resilient US economy. 

Friday’s personal consumption expenditures data for November, the Fed’s preferred measure of underlying inflation, will offer further clues on 2025’s rate path. For now, the swaps market is implying between one and two quarter-point reductions for next year, a decrease from a month ago when two cuts were fully priced. 

“There’s plenty of room for volatility to kick in and a selloff to take place,” said Neil Birrell, chief investment officer at Premier Miton Investors. “There’s going to be less liquidity as well. You’ll see a rapid pace of moves taking place as people adjust their portfolios for the year-end and that could affect all asset classes.”

Treasuries gained after the 10-year yield rose Thursday to 4.57%, a level last seen in May. A Bloomberg gauge for the dollar was on course for its best week in a month despite ticking down on Friday.

Concerns are also growing about the implications of the Republican-led House rejecting a temporary funding plan backed by President-elect Donald Trump on Thursday, with a US government shutdown looming in less than 24 hours.

The development can “inevitably increase the market volatility in the short term, especially after Fed’s hawkish pivot two days ago,” Jasmine Duan, a senior investment strategist at RBC Wealth Management Asia, told Bloomberg TV. Investors face risks from “potentially more sticky inflation and also the debt issue in the US,” she said.

Friday’s US options expiration, which has historically stoked turbulence, offers a final hurdle to end-of-year calm. The quarterly “triple-witching” will see some $6.5 trillion worth of options tied to individual stocks, indexes and exchange-traded funds fall off the board, this year’s largest, according to an estimate from derivatives analytical firm Asym 500. 

Bitcoin slid for a third day in the risk-off mood, dragging down MicroStrategy Inc. and other crypto-related companies in premarket trading. 

In Asia, China’s one-year bond yield slumped to 1% for the first time since the global financial crisis, as traders ramped up bets on monetary easing. 

The yen erased losses after Japan’s key inflation gauge strengthened for the first time in three months and Finance Minister Katsunobu Kato warned against currency speculation. A key gauge of Asian shares dropped for a sixth day.

Oil declined for a second day to extend a weekly fall, as a strengthening US dollar pressured prices. Gold advanced.

Corporate Highlights:

• Novo Nordisk shares fall as much as 27%, the steepest drop on record, after the Danish drugmaker said patients on its experimental obesity medicine CagriSema achieved 22.7% weight loss. Shares of Eli Lilly & Co., maker of a rival drug, jumped.
• Hon Hai Precision Industry Co. is putting its interest in pursuing Nissan Motor Co. on hold while the Japanese automaker is in negotiations for a potential merger with Honda Motor Co.
• Nike Inc.’s new Chief Executive Officer Elliott Hill pledged to reignite growth by refocusing on sports and revamping the company’s products.

Key events this week: 

• US personal income, spending & PCE inflation, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.9% as of 7 a.m. New York time
• Nasdaq 100 futures fell 1.4%
• Futures on the Dow Jones Industrial Average fell 0.4%
• The Stoxx Europe 600 fell 1.7%
• The MSCI World Index fell 0.3%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro rose 0.3% to $1.0391
• The British pound was little changed at $1.2505
• The Japanese yen rose 0.4% to 156.78 per dollar

Cryptocurrencies

• Bitcoin fell 4.9% to $92,576.87
• Ether fell 9.3% to $3,098.48

Bonds

• The yield on 10-year Treasuries declined two basis points to 4.54%
• Germany’s 10-year yield was little changed at 2.30%
• Britain’s 10-year yield declined one basis point to 4.56%

Commodities

• West Texas Intermediate crude fell 1.2% to $68.54 a barrel
• Spot gold rose 0.4% to $2,603.90 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from James Hirai, Divya Patil, Kit Rees and Margaryta Kirakosian.

©2024 Bloomberg L.P.