(Bloomberg) — Stocks were choppy on Monday as investors braced for more volatility following a historic sell-off on Monday. Treasuries fell as demand for safe-haven assets waned.
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U.S. stock futures pared early gains but still showed signs of rebounding after the S&P 500 plunged to the brink of a correction yesterday. European stocks alternated between gains and losses. The dollar strengthened.
Yields on 10-year Treasury notes are heading higher for the first time in nearly two weeks, and markets are eyeing the $58 billion auction as the next test of investor appetite. Traders are also downgrading expectations for a big interest rate cut from the Federal Reserve this year, with financial markets ruling out an emergency rate cut as soon as this month.
“A weak auction could further ease recession fears that have prevailed over the past few sessions and allow stocks to recover much of their losses,” said Tom Essaier of The Sevens Report.
The lingering market uncertainty has investors scrambling to insure their portfolios against a sudden market sell-off. The VIX, Wall Street’s “fear gauge,” remains above 30, a level it has breached only twice in the past two years on a closing basis.
Japan continues to be an epicenter of volatility, with the Topix rising 9.3% after plunging 12% on Monday, and yen carry trade unwinding is only about 50% complete, according to JPMorgan Chase.
“We don’t expect a lull in the coming days,” said Christopher Dembick, senior investment adviser at Pictet Asset Management. The collapse of the yen carry trade will continue to trigger margin calls and losses, but a sustained recovery in stocks will depend on central bank policy and earnings from big tech companies, he said. “We expect the deficit to continue in August.”
Still, the relatively small moves suggest some calm is returning to the market.Goldman Sachs Group Inc. strategists say that over the past 40 years, buying the S&P 500 after a 5% drop has usually paid off.
“We see the last few sharp market swings as buying opportunities,” said Mohit Kumar, chief European economist at Jefferies International.
Among individual stocks moving in premarket trading, Palantir Technologies Inc.’s shares surged 13% after the company raised its full-year outlook, citing continued demand for its artificial intelligence software. Uber Technologies Inc. rose after it reported better-than-expected profits. Caterpillar Inc. rose after the company said its full-year profit would beat previous expectations.
In commodities, crude oil is near a seven-month low, while gold was caught up in a global sell-off on Monday and fell sharply as some traders reduced their holdings in preparation for margin calls, but has since stabilised.
Major events this week:
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China trade, foreign exchange reserves Wednesday
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US Consumer Credit Wednesday
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German industrial production on Thursday
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US initial jobless claims reported Thursday
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Fed President Thomas Barkin to speak Thursday
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China producer price index, consumer price index, Friday
Some of the key market developments:
stock
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S&P 500 futures were up 0.7% as of 8:22 a.m. New York time.
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Nasdaq 100 futures rose 0.8%
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Dow Jones Industrial Average futures up 0.6%
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The Stoxx Europe 600 index fell 0.2%
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The MSCI World Index rose 0.3%.
currency
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The Bloomberg Dollar Spot Index rose 0.3%.
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The euro fell 0.4% to $1.0913.
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The British pound fell 0.7% to $1.2683.
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The Japanese yen fell 0.5% to 144.93 yen to the dollar.
Cryptocurrency
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Bitcoin rose 1.8% to $55,382.83.
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Ether rose 1.3% to $2,467.77.
Bonds
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The yield on the 10-year Treasury note rose 5 basis points to 3.84%.
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German 10-year bund yields fell 2 basis points to 2.17%.
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UK 10-year government bond yields rose 2 basis points to 3.89%.
merchandise
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West Texas Intermediate crude fell 0.7% to $72.46 a barrel.
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Spot gold fell 0.2% to $2,405.06 an ounce.
This story was produced with assistance from Bloomberg Automation.
–With assistance from Winnie Hsu, Aya Wagatsuma, and Alice Gledhill.
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