Stocks tumbled Monday, while the dollar extended its best weekly gain in more than two years, as investors adopted a defensive tone ahead of a crucial week for the Fed amid concerns that soaring inflation will continue to cripple growth prospects in the world's biggest economies.
An energy crisis in Europe, which is threatening to turn the region into recession as the cost of living surges, alongside the damage to the world's second largest economy from China's 'zero Covid' health policies, have added to the muted investor sentiment.
China, which cut its benchmark 1-month loan prime rate last night in its latest effort to kick-start growth, is slipping closer to contraction as factory activity slows amid new pockets of infections in key cities. That's adding to supply-chain disruptions in everything from semiconductors to toys to clothes and shoes, which in turn ratchets up prices pressures for importers and accelerates inflation concerns heading into the winter months.
Last week's decline on Wall Street, which snapped a four-week winning streak, reflects not only concern for faster near-term inflation but also the uncertainty linked to a global slowdown - both of which will likely complicate the Fed's rate path between now and the end of the year.
Data from the Fed's preferred inflation gauge, the PCE Price index, will be published at 8:30 am Friday, with a second estimate of second quarter GDP growth slated for the same time on Thursday.
At present, investors are divided on the size of the Fed's September rate hike, with bets on a 50 basis point move sitting at around 49.5% and the chances of a 75 basis point increase pegged at 50.5% ahead of Chairman Jerome Powell's key address at the Jackson Hole symposium later this week.
Powell's speech, at 10:00 am Eastern time Friday, Aug. 26, will likely provide the Fed Chair a chance to cement the central bank's thinking on interest rate hikes heading into the autumn months as bets on a 75 basis point move in September continue to fade - even as policymakers insist that inflation remains their single-largest concern with respect to the economy's ability to return to full stride.
The dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.8% higher at 108.918 in New York trading, extending last week's 1.2% gain and taking the foreign exchange benchmark to within touching distance of a 20-year high.
Benchmark 10-year note yields, which move in the opposite direction of prices, rose 8 basis points from yesterday to 3.029% while 2-year notes were pegged at 3.32%.
WTI crude futures for September delivery were marked 10 cents lower in early New York trading $90.67 per barrel, while the Automobile Association of America pegged domestic U.S. gasoline prices at $3.905 per gallon, extending a run of 63 consecutive days of decline and taking prices back to the lowest levels since late February.
European stocks slumped lower amid hawkish comments from Joachim Nagel, the head of Germany's Bundesbank, who said the European Central Bank won't be swayed by economic weakness as it lifts rates to fight the fastest inflation in more than 25 years.
Europe's Stoxx 600 benchmark fell 0.96% by the close of trading in Frankfurt, following on from a 0.95% decline for the region-wide MSCI ex-Japan index in Asia.
On Wall Street, the S&P 500 ended down 2.14%, while the Dow Jones Industrial Average fell 643 points, or 1.91%, to 33,063. The tech-focused Nasdaq lost 2.55%.
AMC Entertainment (AMC) shares plunged 42% after the movie theatre chain's largest rival, Cineworld, confirmed it's considering a Chapter 11 bankruptcy filing in the United States.
AMC shares were also impacted by the distribution of preferred shares, which will trade on the New York Stock Exchange under the ticker symbol APE, that have the potential to dilute common stockholders if converted at some point in the future.
Bed, Bath & Beyond (BBBY) shares extended declines Monday, pulling the meme-stock favorite to the lowest levels in three weeks, as investors continue to exit the troubled home goods retailer on the back of last week's $60 million sale by activist investor Ryan Cohen. Shares ended down 16.2%
Adidas AG (ADDYY) shares fell 5.2% after the sports apparel group, and global Nike (NKE) rival, said CEO Kasper Rorsted will depart the company next year.
