U.S. Opening Bell: Futures, Asian Shares Extend Selloff; Gold, Oil Slump

Key Events

Though US futures initially rebounded early Tuesday from Monday's Wall Street selloff, at time of writing all four contracts on the major US indices—the S&P 500, Dow Jones, NASDAQ and Russell 2000—along with European stocks have headed lower. As well, during Tuesday's Asia session, regional benchmarks finished in the red, ahead of an array of the last central bank decisions for 2021. 

Expectations of a hawkish Fed, plus ongoing Omicron uncertainty are buffeting markets.

The dollar hit a one week high before reversing; Treasury yields crawled higher; Bitcoin as well as gold have reversed lower.

Global Financial Affairs

At the open, the Europe STOXX 600 Index gained with miners. However, Asian stocks fell on news of the spread of Omicron, with the MSCI's broadest index of Asia-Pacific stocks excluding Japan dropping nearly 0.5%.

The broad Asian benchmark is heading toward completing a second consecutive continuation pattern within its falling channel.

China's Shanghai Composite also dropped 0.5% after health officials identified the first Omicron case in Tianjin, adding to the country's woes as major Chinese manufacturing hub Zhejiang contends with its first COVID-19 cluster this year. Tens of thousands of locals are now in lockdown, suspending all business operations.

The market narrative says traders are focused on central bank policy decisions, in response to the highest inflation in decades while also monitoring Omicron developments—clearly the two most influential financial market themes right now. If that assessment is correct, investors appear to have disregarded the first UK reported Omicron-related death along with ten hospitalisations, most of whom were vaccinated, perhaps indicating the variant's alarming contagion rate. It's possible investors are ignoring the latest coronavirus risks on expectations that central banks will contain spiking inflation.

However, that could be tricky. Since central banks combat inflation via tightening, equity investors stand to be pressured by a double blow: equities could become more expensive as cash becomes more costly, pushing stock valuations instantly higher, both of which tend to trigger selloffs.

And that doesn't even include the possibility companies will reduce buybacks and curtail expansion over the longer term.

Conversely, if policymakers don't tighten, double-digit inflation, seen in the 70s, could be on the horizon. Indeed, Allianz Chief Economic Advisor Mohamed El-Erian has called the Fed's "transitory" characterization of inflation as the "worst inflation call" in the central bank's history.

During Monday's New York session, all four gauges closed in the red, with the S&P 500 Index falling from a record and the NASDAQ 100 underperforming, down 1.5%.

Mega caps took a hit. Tesla (NASDAQ:TSLA) plummeted 5%.

The electric vehicle maker completed a peak-trough reversal, though stricter technical analysts would wait for another peak-trough pair, independent of the preceding uptrend.

Apple (NASDAQ:AAPL) shares dropped 2%, retreating from its $3 trillion market value to close with a $2.88 trillion market cap.

The iPhone maker's price action developed a bearish pattern, a Dark Cloud Cover that opened higher than the preceding day, but closed deeply into its candle—on high volume.

In addition, travel-related companies such as cruise operators, airlines and hotels, all fell.

Yields on the 10-year Treasury reversed a bit from yesterday's sharp decline. Investors have been hoarding bonds amid the equity selloff.

Rates stopped right on the neckline of a top.

The dollar was little changed, having given up an earlier advance.

The greenback's move seemed to have been thwarted by the resistance generated by the top of a bullish pennant.

Gold edged lower.

The yellow metal may be developing a small H&S bottom.

Bitcoin was hovering at its lowest levels since September, after having fallen below the digital token's uptrend line since the mid-Jul low. There are a number of reasons BTC's little brother, Ethereum, which so far has been one of 2021's best crypto performers, could continue outperforming Bitcoin.

Oil fell as traders reacted to the possibility of social restrictions which could weigh on demand. However, WTI prices remained within the same cluster in which they've been trading for the sixth session.

Up Ahead

• US PPI prints on Tuesday.
• The Fed announces a rate decision on Wednesday.
• The BOE and ECB release policy decisions on Thursday.
• The BOJ's monetary policy decision comes out on Friday.
• S&P Dow Jones Indices quarterly rebalance effective after markets close on Friday.
• Friday also sees "quadruple witching" in the US market; options and futures on indexes and equities expire.

Market Moves

Stocks

• The FTSE 100 rose 0.4%
• The Stoxx Europe 600 rose 0.3% as of 9:36 a.m. London time
• Futures on the S&P 500 slipped 0.19%
• Futures on the NASDAQ 100 were down 0.54%
• Futures on the {{o|Dow Jones Industrial Average}} fell 0.01%
• The MSCI Asia Pacific Index fell 0.3%
• The MSCI Emerging Markets Index fell 0.6%

Currencies

• The British pound was little changed at $1.3220
• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.1% to $1.1297
• The Japanese yen fell 0.1% to 113.66 per dollar
• The offshore yuan was little changed at 6.3693 per dollar

Bonds

• Britain's 10-year yield rose one basis point to 0.71%
• The yield on 10-year Treasuries advanced two basis points to 1.43%
• Germany's 10-year yield was little changed at -0.37%

Commodities

• WTI fell 0.25% to $71.12 a barrel
• Brent crude rose 0.8% to $74.98 a barrel
• Spot gold fell 0.2% to $1,783.80 an ounce