Global Stocks Wobble amid Increased Recovery Risks

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Principal Points

• Stocks decline in Asia, while European markets traded slightly higher early Monday
• Investors’ nervousness has been rising as the market approaches the final quarter of 2021

Choppy Trading Defines Global Stock Movements

Stocks in Asia fell on Monday. As a result of market participants becoming more defensive in the face of increasing uncertainty related to growth prospects and looming inflation concerns. European markets opened the day fairly flat to slightly higher. The region-wide Stoxx Europe 600 drifted modestly to the upside by less than half a percent.

US index futures gained traction in pre-market trading on Monday after all three major stock gauges finished last week in the red. Futures contracts tied to the Dow Jones Industrial Average advanced about 0.5% ahead of the bell today. S&P500 futures and Nasdaq futures were higher by 0.4%, and 0.3%, respectively.

Decreased Risk Appetite for Stocks Broadly as Risks Loom

The continued climb of Covid-19 cases coupled with emerging signs of economic slowdown around the world has posed heightened risks for the financial markets. Investors prepare to enter the final quarter of the year. On the other hand, several key events and economic reports will provide insights into the expected outlook for the global economy.

In the US, President Joe Biden is on track to advance his economic agenda by pushing forward his $3.5tn spending plan. Congressional Democrats are set to discuss the big-ticket fiscal stimulus this week. However, a key Democratic senator has said he will not support the costly package even if it was cut by half.

Sen. Joe Manchin stated there is “no way” that the $3.5tn plan could be passed. This is due to the late September goal and the looming differences in the views of Democratic senators.

Mr. Manchin suggested he could back a stimulus with a price tag of $1tn to $1.5tn. That range would be based on a modest rise in the corporate tax rate to 25%. The current size of the package assumes a tax rate increase from 21% to 28%.

Meanwhile, the US Federal Reserve is expected to start unwinding, or tapering, its vast monetary policies as a way to allow the economy to cool from the extraordinary amounts of cash flowing into the system. Since the pandemic began, the US central bank has been injecting as much as $120bn a month in the US economy.

The Fed will convene for its regular policy meeting on Sept. 21-22 when central bankers will discuss the timeline for the tapering process. Analysts largely expect that Fed Chairman Jerome Powell will announce the Federal Reserve will begin scaling down its monthly support after the November meeting.

Currency Action Fairly Muted on Monday

Currency traders are witnessing a quiet start of the week with the US dollar continuing to appreciate against the euro. The EUR/USD pair reached a session low of 1.1780 earlier today. The USD/JPY is on pace to log the second day in positive territory as it floats right above the 110.00 milestone.

Gold is trying to stage a rebound today after closing down by 0.5% on Friday. The precious metal is now trading at levels moderately above $1,790 per troy ounce.

Cryptocurrencies appeared out of breath in the early hours of today’s market trading. Bitcoin declined about 1% to an intraday low of $44,300, while ether was down more than 2% to $3,200 per coin.