US equity futures struggled to build on last week’s rally, as investors assessed the potential impact of China’s modest new economic growth target and waited to see if Treasury yields would extend their declines off recent highs.
Chinese leaders set a lower-than-expected 5% economic growth goal, which implies Beijing is unlikely to deploy large-scale stimulus to shore up its economy as it emerges from Covid-era lockdowns. That kept US futures in the red, after Friday’s strong session that saw the S&P 500 benchmark snap a three-week losing streak, and lifted the Nasdaq 100 to its best day since early February. Europe’s Stoxx 600 index also retreated, with commodity and energy shares in particular feeling the heat from Beijing’s growth outlook.
Some analysts saw the unambitious target as positive if it prevents another bout of price growth stemming from the world’s No. 2 economy. Prices for iron ore, crude oil and copper fell, knocking a Bloomberg index of commodities as much as 1% lower.
“The inflation impulse may not be as extreme for the global economy,” Christian Mueller-Glissmann, head of asset allocation research at Goldman Sachs Group Inc., told Bloomberg Television. “Our biggest concern coming into this reopening was oil. A significant increase in oil prices would make the job for the Federal Reserve even more difficult.”
US 10-year Treasury yields have slipped off the psychologically key 4% mark and are currently around 3.91%, more than 10 basis points below levels hit last week. Euro zone yields fell even more sharply as investors trimmed wagers on peak interest rates in the bloc.
Friday’s Wall Street gains were driven by data showing service providers’ costs growing more slowly. Monthly payrolls data due at the end of this week will be crucial after stronger-than-expected figures last month boosted bets on more rate hikes.
Traders are also waiting to see if Fed Chair Jerome Powell’s testimony to the Senate and House committees echoes recent hawkish comments from other rate-setters. But conviction is growing that the Fed’s interest rate rises will not go beyond the 5.4% or so that’s already priced. A 25 basis-point rate rise is expected for the Fed’s March 21-22 meeting, with an outside chance of a 50 basis-point move.
“Powell could surprise markets this week with his testimony but they have already set it up so they hike in 25 basis-point increments,” Nikko Asset Management chief strategist John Vail said on Bloomberg Television.
Vail predicted payrolls data to show a softer figure than the previous month, “and that may calm down some of the fears of the Fed.”
Elsewhere in currency markets, the dollar gained after slipping 0.8% last week
In US premarket trading, shares in Apple rose 1% as the firm geared up to launch its next slate of laptops and desktops.
Key events this week:
Some of the main moves in markets:
Stocks
Currencies
Cryptocurrencies
Bonds
Commodities
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