U.S. index futures signaled losses will cascade in the world’s biggest stock market after equities ended last week down the most in almost four years.
In a broad selloff spanning all industries, stocks including Apple Inc. and Netflix Inc. slid at least 5.3 percent, while slumps in Gilead Sciences Inc. and Biogen Inc. indicated a selloff in biotechnology shares won’t abate. ConocoPhillips and Schlumberger Ltd. lost more than 3.2 percent as crude fell further.
Contracts on the Standard & Poor’s 500 Index due in September slid 3.5 percent to 1,902.50 at 8 a.m. in New York. Futures on the Nasdaq 100 Index fell 5 percent and those on the Dow Jones Industrial Average retreated 3.7 percent.
“GDP growth in the U.S. and euro zone economies just isn’t strong enough to prevent a global disinflationary shock from accumulating,” Thomas Thygesen, SEB’s head of cross-asset strategy, said by phone from Copenhagen. “People have realized there could be further weakness in the Chinese currency. They don’t seem in control of the situation and we could see feedback loops that haunt the U.S.”
Calm in the U.S. market shattered last week, with volatility soaring by the most on record as the Dow entered a correction and investors dumped the biggest winners of 2015. A gauge of volatility expectations more than doubled last week. Shares succumbed to a global selloff that’s wiped more than $5 trillion off the value of equities around the world since China’s shock currency devaluation on Aug. 11.
Fed Effect
Moreover, speculation had been building all year for the Federal Reserve to raise interest rates in September for the first time since 2006, following the end of quantitative easing in 2014. Traders are now pricing in less than a one-in-three chance the central bank will act next month, from about 48 percent just before the yuan devaluation.
“The chickens are coming home to roost,” Thygesen said. “We’ve been too hopeful that Fed tapering didn’t matter, that they could hike interest rates and we’d still have a healthy economy. Since the Fed stopped bond purchases, they’ve been choking the life out of global manufacturing and that matters most for commodities and emerging markets.”
The S&P 500 is down 7.5 percent from its last record in May, and on track for its worst August decline in 14 years. It sank the most since 2011 on Friday amid signs China’s economy is weakening. A gauge of volatility expectations more than doubled last week.
Despite last week’s selloff, the benchmark index has avoided the corrections and bear markets afflicting stocks from Sao Paulo to Shanghai. It was only Friday that the S&P 500 capped its single 5 percent decline of the year, spending the previous seven months locked in a trading range that had no precedent in a century of market history.
source:Bloomberg
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