US stock futures drop after health rout as dollar holds ground

[WELLINGTON] Index futures foreshadowed a mixed start to the week for equities as oil retreated, while the Federal Reserve streamlining its message on the outlook for US interest rates continued to underpin the dollar.

Instability in the American equity market came from a different quarter on Friday, with biotechnology shares sliding into a bear market.

US index futures signaled further losses Monday, while contracts on Japanese stocks were higher, with markets in Hong Kong, South Korea and Taiwan closed for holidays.

Fed Chair Janet Yellen joining the chorus envisaging higher borrowing costs before the year is out helped the Bloomberg Dollar Spot Index to its best week since July. Crude snapped a two-day advance.

"It is unclear whether there has been a concerted effort by officials to reassure markets that the Fed is still on track or if these are comments that would have just happened anyway," Philip Borkin, a senior economist in Auckland at ANZ Bank New Zealand Ltd., wrote in a client note.

Nevertheless "Fed policy, and its impact on broader markets, will no doubt remain at the forefront of the markets' mind."

St Louis Fed chief James Bullard floated Friday the possibility of a rate hike as soon as next month, after Ms Yellen said she saw a case for tightening policy in 2015.

With odds on a move in October at just 18 per cent, investors will be scanning monthly payrolls data later this week for evidence of further strength in the labor market.

Uncertainty over US rates and concern China's slowdown will spread has rocked financial markets this quarter, with global equities on track for their worst three months since 2011.

Standard & Poor's 500 Index e-mini futures due December fell 0.4 per cent by 7.42am in Tokyo, after a 2.7 per cent slump in health-care stocks left the US benchmark down 0.1 per cent on Friday.

Nikkei 225 Stock Average futures rose 1.1 per cent to 17,970 at the end of last week, while contracts on Australia's S&P/ASX 200 Index were down 0.1 per cent. New Zealand's S&P/NZX 50 Index, the first major gauge to start trading each day in the Asian region, added 0.2 per cent.

The Nasdaq Biotechnology Index tumbled more than 5 per cent on Friday, with Democratic presidential hopeful Hillary Clinton igniting a selloff in drugmaker shares after suggesting there may be "price gouging" in the prescription pill market.

"There was always fear of what she wanted to do to health care in terms of pricing," said John Stoltzfus, the New York- based chief market strategist at Oppenheimer & Co. "What you've got is it's been the leading sector up until a little bit ago. As a result of that, there's profit taking when anyone feels a bit of uncertainty."

The Chicago Board Options Exchange SPX Volatility Index, a gauge of expected price swings in US shares known as the VIX, rose a second day on Friday, climbing 0.6 per cent to 23.62.

CURRENCIES

The dollar strengthened against New Zealand's currency, rising 0.2 per cent to 63.71 US cents, and maintained gains versus the euro to the yen.

Japan's currency was little changed at 120.56 per dollar after falling 0.4 per cent on Friday. Bloomberg's dollar gauge, which tracks the greenback against 10 major peers, jumped 1 per cent last week and is headed for a quarterly advance of 2.8 per cent as speculation mounts that the Fed will pull the trigger on higher rates this year.

Mr Bullard told reporters on Friday that he'd "like to get going" on rate hikes but that he's not yet clear whether there's been enough data between now and the next Fed Open Market Committee meeting in October to make that call.

San Francisco Fed President John Williams also speaks this week, along with another appearance from Yellen. Fed Bank of Chicago chief Charles L. Evans will also deliver a speech in Milwaukee Monday.

Also on investors' radars on Monday is a report on industrial company profits out of China. Thailand updates on trade and Indonesia issues data on money supply.

COMMODITIES

In commodities, oil was the biggest mover in early trading. West Texas Intermediate crude lost 0.7 per cent to US$45.40 a barrel after climbing 2.3 per cent last week, the most this month. Brent fell 0.5 per cent to US$48.36 per barrel.

Copper futures on the Comex added 0.1 per cent to US$2.2860 a pound, while palladium gained 0.5 per cent to US$667.40 an ounce on the spot market.

BLOOMBERG