Monday September 26th


Dow futures fall as the British pound hits record low against the dollar

U.S. stock markets index futures fell on Monday as surging interest rates and foreign currency turmoil threatened to push the S&P 500 to a new closing low for the year. Dow Jones Industrial Average futures fell 78 points, or 0.3%, off the lows of the morning. S&P 500 futures shed 0.3%. Nasdaq 100 futures lost 0.1%. The British pound dropped to a record low on Monday against the U.S. dollar. Sterling at one point fell 4% to an all-time low of $1.0382. The Federal Reserve’s aggressive hiking campaign, coupled with U.K.’s tax cuts announced last week has caused the U.S. dollar to surge. The euro hit the lowest vs. the dollar since 2002. A surging greenback can hurt the profits of U.S. multinationals and also wreak havoc on global trade, with so much of it transacted in dollars. “Such U.S. dollar strength has historically led to some kind of financial/economic crisis,” wrote Morgan Stanley’s Michael Wilson, chief U.S. equity strategist, in a note. “If there was ever a time to be on the lookout for something to break, this would be it.” On Friday, stocks ended a brutal week with the blue-chip Dow finding a new intraday low for the year and closing lower by 486 points. The broad-market S&P 500 temporarily broke below its June closing low and ended down 1.7%. The tech-heavy Nasdaq Composite lost 1.8%. Traders will be closely watching the S&P 500 on Monday for any break below its bear market low. The S&P’s low close for the year in June was 3,666.77. It closed Friday at 3,693.23 after trading briefly below that close. The benchmark’s intraday low for the year is 3,636.87. Any trade below those levels could drive more selling in the market. Another super-sized rate hike by the Federal Reserve last week was the catalyst for the latest leg downward in markets. The central bank indicated it could raise rates as high as 4.6% before pulling back. The forecast also shows the Fed plans be aggressive this year, hiking rates to 4.4% before 2022 ends. Bond yields soared after the Fed enacted another rate hike of 75 basis points. The 2-year and 10-year Treasury rates hit highs not seen in over a decade. On Friday, Goldman Sachs slashed its year-end target for the S&P 500 to 3,600 from 4,300. Rates were surging again on Monday with the 2-year Treasury topping 4.29%. Shares in the Asia-Pacific mostly fell sharply on Monday as negative sentiment continues to weigh in on markets. The Nikkei 225 in Japan dropped 2.66% to 26,431.55, and the Topix also slipped 2.71% to 1,864.28. South Korea’s Kospi tumbled 3.02% to 2,220.94 and the Kosdaq plunged 5.07% to 692.37. Hong Kong’s Hang Seng Index fell 0.21% in the final hour of trade, erasing earlier gains, with the Hang Seng Tech Index bucking the trend and rising by 1.61%. In mainland China, the Shanghai Composite fell 1.2% to 3,051.23 and the Shenzhen Component was down 0.398% to 10,962.56. Brent crude fell below $85 a barrel Monday, as recession fears weighed and the U.S. dollar surged. Brent futures for November settlement fell to around $84.53 early in the day, before recovering to trade around $85 by 1 p.m. London time. West Texas Intermediate futures also came off lows to trade around $78. The U.S. dollar surged to a high not seen since 2002 Monday, while sterling tumbled to a record low against the currency. On Friday, both Brent and WTI futures fell around 5% to hit their lowest level since January. Gold prices were at their lowest level in 2-1/2 years on Monday, weighed down by a strong dollar and U.S. Treasury yields amid the U.S. Federal Reserve’s hawkish stance on rate hikes. Spot gold was flat at $1,639.19 per ounce, after dropping as much as 1% earlier to its lowest since April 2020, at $1,626.41, in the Asia session. “We’ve got dollar strength and an increase in the U.S. Treasury yields, which typically would push gold lower. However, broadly speaking, gold isn’t doing too badly in the scheme of things,”  independent analyst Ross Norman said.