US equities edged lower as investors weighed the toll policy-tightening will take on company earnings and economic growth. The dollar rose.
After swinging between gains and losses, the S&P 500 slipped amid declines in some big tech names including Microsoft Corp and Apple Inc. The Nasdaq 100 led losses among major benchmarks, pressured by the semiconductor sector after Washington's move to further restrict China's access to US technology and signs of slowing chip demand worldwide. The cash Treasury market is closed for Columbus Day in the US.
The mood remains fragile ahead of Thursday's US inflation data and a raft of bank earnings that will kick off the third-quarter season in earnest. A hotter-than-expected inflation reading, coming on top of last week's strong labour print, will heap pressure on policymakers to extend 75 basis-point rate hikes beyond this year.
Signs of a dangerous new escalation in the Russia-Ukraine war weighed on risk sentiment, lifting the dollar against other currencies, while British authorities' latest efforts to support jittery markets largely failed to reassure pound traders.
Relentlessly hawkish central banks are making investors gloomy about the upcoming earnings season. JPMorgan Chase & Co and Citigroup Inc. are among the big banks that will unveil earnings later this week.
Even after this year's brutal selloff, markets have not priced all the risks stemming from higher interest rates and stubbornly high inflation. More than 60 per cent of the 724 respondents to Bloomberg's latest MLIV Pulse survey predicted the earnings season would push the S&P 500 Index lower. Strategists at Goldman Sachs Group Inc and Morgan Stanley warned it would be a difficult reporting season, given risks such as slowing demand and soaring costs.
"The bear market will not be over until the deteriorating fundamental picture is more fully discounted," Morgan Stanley strategists told clients.
Meanwhile, Britain stepped up efforts to support market functioning. The Bank of England extended emergency measures backing the bond market through early next month, while Chancellor of the Exchequer Kwasi Kwarteng brought forward the date at which he will deliver his much-awaited fiscal strategy.
Despite the measures, 30-year borrowing costs rising above 4.5 per cent. The pound slipped to trade at a 12-day low.
"The BOE is going to calm the market, but it's not going to save the market," said Geoffrey Yu, a senior strategist at Bank of New York Mellon in London. The central bank "is not going to cap yields", he said. BLOOMBERG