U.S. stock futures dropped, signaling equities will extend their worst loss in six weeks, as global shares slid after China tightened lending rules and concern grew that early Greek elections could trigger political turmoil.
Futures on the Standard & Poor’s 500 expiring this month fell 0.9% to 2,040.9 at 9:15 a.m. in New York. Dow Jones Industrial Average contracts slipped 146 points, or 0.8%, to 17,705.
“To me this seems like a knee-jerk reaction with China,” Steve Bombardiere, an equity trader at Conifer Securities LLC in New York, said by phone. “We’ve had a run up, the market is certainly thinning out as we get closer to the end of the year and any move is going to be a little exaggerated.”
Global equities fell after China said lower-rated bonds can no longer be used as collateral for some short-term loans, sparking a selloff in riskier debt that spread to government notes and stocks. Stocks in China tumbled the most since 2009 and the MSCI All-Country World Index dropped 0.3%.
The Stoxx Europe 600 Index lost 1.6% as Tesco Plc slumped and energy companies extended losses. U.K. manufacturing output unexpectedly fell for the first time in five months. Meanwhile, Greece’s move to bring forward the process for choosing a new head of state risks triggering parliamentary elections that could put in power a party that opposes the terms of the nation’s bailout by the European Union.
Oil touched a five-year low yesterday, stoking concern that lower demand points to a slowing global economy. Crude (NYMEX:CLF15) rebounded today, with West Texas Intermediate climbing 1%.
“Effectively the sell-off in Asia has led to broad-based selling across the globe,” Chad Morganlander, a money manager at St. Louis-based Stifel Nicolaus & Co., which oversees about $160 billion, said by phone. “This short-term decline is thematic of the concern about global growth as well as a potential concern about Federal Reserve action next week.”
The S&P 500 (CME:ESH15) has rebounded 11% from a low in October amid speculation the U.S. economy is strong enough to withstand a slowdown overseas and tighter monetary policy after the Fed wound up its asset-purchase program.
Federal Reserve officials are discussing the future of their vow to hold interest rates low for a “considerable time,” ahead of a meeting next week where they will weigh that pledge against signs of economic strength. The central bank will meet Dec. 16-17.
“There’s a feeling that the Fed is moving a bit faster than necessary on the tightening front,” said Thomas Thygesen, head of cross-asset strategy at Skandinaviska Enskilda Banken AB in Copenhagen. “Markets won’t like it if the Fed drops the ‘considerable time’ phrase next week. The slump in oil prices and the impact that will have on inflation is one more factor for the Fed to consider.”
The S&P 500 dropped 0.7% yesterday, following a seventh straight weekly gain that pushed the gauge to a record as better-than-estimated payrolls data increased optimism in the economy. The index ended the week trading at 17.3 times its members’ projected earnings, the highest valuation since 2009. The Dow also reached a record last week, climbing within 10 points of 18,000 before retreating.
Among stocks moving on corporate news, T-Mobile US Inc. dropped 4.6% after offering to sell as many as 17.4 million new convertible shares.
Manchester United Plc slumped 8.6% after saying Edward S. Glazer, whose family owns the English soccer club, plans to sell 3 million shares.
Verizon Communications Inc. slipped 3.2% after saying phone discounts and promotions will hurt profitability at its wireless business.
Tesla Motors Inc. fell 2.4%. The shares have slumped for seven days amid concern that cheaper fuel prices will make the company’s luxury electric cars less appealing.
Spirit Airlines Inc. slipped 6.4% as the carrier said profitability will decrease in the fourth quarter as lower fares offset a decline in fuel prices.
H&R Block Inc. fell 6.6% after the provider of tax services posted a larger-than-estimated loss for the second quarter, while sales for the period also disappointed analysts.
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