Stocks, Futures Sink on Manchin Shock, Virus: Markets Wrap

Stocks, Futures Sink on Manchin Shock, Virus: Markets Wrap

(Bloomberg) — Investor sentiment sagged Monday amid turmoil for President Joe Biden’s economic agenda and rising global omicron infections, spurring selloffs in stocks, equity futures and oil, while bolstering sovereign bonds.

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U.S. futures fell at least 1%, while European shares trimmed losses after Moderna Inc. said its vaccine increased antibody levels against the variant. Treasuries gained and the dollar held a jump from Friday, while crude oil slid on worries that mobility curbs to tackle the strain will hurt demand.

Goldman Sachs Group Inc. economists reduced their U.S. economic growth forecasts after Senator Joe Manchin blindsided the White House on Sunday by rejecting Biden’s roughly $2 trillion tax-and-spending package, leaving Democrats with few options for reviving it.

Meanwhile, lockdown risks are rising in Europe as U.K. officials refused to rule out stronger measures before Christmas, while the Netherlands returned to lockdown. U.S. clampdowns likely won’t be necessary, but Biden is planning to warn the nation on Tuesday of the perils of remaining unvaccinated and his top medical adviser said that hospitals may be strained.

Europe is also bracing for energy shortages as freezing weather sets in, boosting demand and sending prices surging at a time supply just can’t keep up.

The lira tumbled to another record low after Turkish President Recep Tayyip Erdogan pledged to continue cutting interest rates.

Major U.S. tech and internet stocks dropped in premarket trading, while Moderna jumped. Meanwhile, travel, commodity and energy shares were among the biggest declines in Europe. Novo Nordisk A/S plunged after the Danish drugmaker warned of supply challenges with its new obesity drug in the key U.S. market.

Markets are grappling with a range of uncertainties while heading toward a holiday period when thinner trading volumes can exacerbate swings.

“Investors should be prepared for Covid to continue to be a main factor in market performance heading into 2022,” said Robert Schein, chief investment officer at Blanke Schein Wealth Management. “After the bull run we’ve seen over the past 21 months, investors aren’t as used to prolonged periods of volatility.”

Global stocks have retreated from record highs in recent weeks amid concerns about Covid-19 hurting the economic recovery and as central banks pivot toward fighting inflation. Federal Reserve Governor Christopher Waller said a faster wind-down of the central bank’s bond-buying program puts it in a position to start lifting interest rates as early as March.

“As for what to do in the face of these risks?” wrote Luke Hickmore, investment director at Standard Life Investments. “Buy the dip. The prospects for growth will improve rapidly from here, likely due to Omicron remaining mild compared to Delta. Companies are ready to spend on Capex, people will get past any short term fire breaks for omicron and the market will likely see a recovery in the new year when liquidity returns.”

In China, banks lowered the one-year loan prime rate, a key benchmark of borrowing costs, for the first time in 20 months. But that did little to shore up risk appetite.

Meanwhile, Germany’s new coalition picked Joachim Nagel, a Bank for International Settlements official, as the central bank’s next president, according to a person familiar with the matter.

For more market analysis, read our MLIV blog.

What to watch this week:

Reserve Bank of Australia releases minutes of its December interest rate meeting. Tuesday

EIA crude oil inventory report Wednesday

Bank of Japan Governor Haruhiko Kuroda speaks Thursday

U.S. consumer income , new home sales, U.S. durable goods, University of Michigan consumer sentiment, initial jobless claims. Thursday

Friday: U.S. markets are closed. European markets close earlier

Some of the main moves in markets:

Stocks

Futures on the S&P 500 fell 1.3% as of 6:01 a.m. New York time

Futures on the Nasdaq 100 fell 1.4%

Futures on the Dow Jones Industrial Average fell 1.1%

The Stoxx Europe 600 fell 1.5%

The MSCI World index fell 0.8%

Currencies

The Bloomberg Dollar Spot Index was little changed

The euro rose 0.2% to $1.1267

The British pound fell 0.4% to $1.3198

The Japanese yen was little changed at 113.58 per dollar

Bonds

The yield on 10-year Treasuries declined two basis points to 1.39%

Germany’s 10-year yield was little changed at -0.38%

Britain’s 10-year yield declined one basis point to 0.75%

Commodities

West Texas Intermediate crude fell 3.9% to $68.07 a barrel

Gold futures fell 0.4% to $1,798.50 an ounce

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