U.S. stocks were set to open lower Tuesday as investors remained on edge following last week’s sharp selloff.
Futures pointed to an opening loss of 0.4% for the S&P 500 after the index rose for a second consecutive session Monday. The dollar fell against other major currencies.
In Europe, the Stoxx Europe 600 was down 0.3% in choppy trade. Most Asian markets gained, though Japanese stocks fell.
The moves followed last week’s vertiginous plunge where the S&P 500 fell more than 5% in a broad selloff sparked by signs of increasing inflation and rising bond yields. Bets on continuing low market volatility were upended, with the Cboe Volatility Index, or VIX, a measure of expected swings in the S&P 500, ending the week up nearly 70%. The index was up 5% Tuesday.
Investors say a strong global economy and solid earnings will continue to offer support, but the market recovery will be uneven.
“There is enough robust economic momentum and we still see the glass as half full,” said
chief investment officer at U.S. Bank Wealth Management. “But volatility will persist and we can see some more choppiness in the next few weeks.”
In a sign of skittishness, investors say they are reducing risk by rotating into cash and out of equities, according to the February survey of global fund managers by Bank of America Merrill Lynch released Tuesday. The survey also noted a record one-month jump in the proportion of investors indicating they have taken out protection against a sharp fall in equity markets in the next 3 months.
The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, fell 0.5% and the dollar lost 1.1% against the Japanese yen. The greenback had gained last week as investors were seeking havens from the turmoil but lost traction this week as markets stabilized.
Traders are watching for Wednesday’s U.S. inflation data as a key bellwether of what’s next for markets. Strong wage growth in January pressured U.S. bonds and was a precursor for last week’s correction, so analysts say a higher-than-expected reading could rattle markets.
Economists polled by The Wall Street Journal expect data to show headline U.S. inflation eased to 1.9% from 2.1% in December, while the “core” rate, which excludes volatile food and energy costs, will dip to 1.7% from 1.8%.
“Upside inflation surprise may further renew the upward pressure on yields and potentially trigger another correction in risk assets,” analysts at Citigroup said in a note to clients.
The 10-year Treasury yield fell to 2.831% from 2.857% on Monday. It hit a four-year high of 2.902% intraday Monday.
Most European government bond yields were also lower Tuesday, with the German 10-year bund at 0.733%.
The jump in bond yields to start 2018 was one reason behind the recent global stock rout, and analysts say rates could rise more as central banks normalize policy and the global economy continues its upswing.
If the 10-year Treasury yield reaches 3% it could trigger further market volatility, said
a rates strategist at DBS. The bond’s yield bottomed out at 1.32% in July 2016.
Brent crude, the global oil benchmark, was down 0.2% to $62.47 a barrel, while gold was up 0.4%.
In Asia, Japan’s Nikkei Stock Average fell 0.7% while Hong Kong’s Hang Seng Index rose to 1.3% after dropping nine of the past 11 trading days. The Shanghai Composite Index rose 1% ahead of the Lunar New Year holiday.
Despite the choppiness in Tuesday trading,
portfolio manager at Oceanwide Asset Management Ltd. in Hong Kong, said last week’s rout provides a chance to hunt for bargains.
“It’s a golden opportunity to accumulate some good, quality stocks,” he said, adding that Oceanwide has increased positions in Asian tech stocks.
—Gregor Stuart Hunter contributed to this article.
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