(Bloomberg) -- Stocks and US equity futures fell Tuesday amid escalating US-China tension over Taiwan and deepening worries about a global economic slowdown, risks that supported demand for havens like Treasuries.
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An Asian share index slid the most in three weeks, with some of the steepest falls in Hong Kong, China and Taiwan. US and European futures were also in the red as July’s equity market rebound stumbled into August.
US House Speaker Nancy Pelosi is set to land in Taiwan on Tuesday and would be the highest-ranking American politician to visit in 25 years. China views the island as its territory and has vowed an unspecified military response to any Pelosi visit.
The visit may end up being another “short-term dislocation” for markets but “it’s always concerning when they do happen,” Ayako Yoshioka, senior portfolio consultant at Wealth Enhancement Group, said on Bloomberg Radio.
The offshore yuan stabilized after retreating Monday, while Taiwan’s dollar weakened. Gains in the yen hinted at the mood of caution in markets.
Treasuries advanced, lowering the 10-year yield to about 2.55%. Bonds globally have pushed higher in the wake of data suggesting factory output is shrinking or cooling in key economies just as input prices moderate.
The wide-ranging strains in US-China ties are exacerbating the geopolitical stress already buffeting markets from Russia’s war in Ukraine.
“All eyes will be on China’s military to see how they react if Pelosi does indeed go to Taiwan,” Edward Moya, senior market analyst for the Americas at Oanda, wrote in a note.
Investors are also keeping a wary eye out for more potentially hawkish comments from Federal Reserve officials about the need for higher interest rates to restrain elevated inflation.
Expectations for how aggressive the Fed must be have receded because of recession risk, so any shift in those perceptions could stoke market volatility.
The prospect of a demand slowdown has sapped oil, leaving it around $94 a barrel. Oilseed and grain futures fell after the first grain ship since Russia’s invasion left Ukraine, heralding some relief for a tight global food market.
In Australia, the central bank raised borrowing costs for a fourth month while adding it’s not on a pre-set path in normalizing rates and will be guided by incoming data. The nation’s bonds surged and its currency tumbled.
What to watch this week:
Airbnb, Alibaba and BP are among earnings reports
US JOLTS job openings, Tuesday
Chicago Fed President Charles Evans, St. Louis Fed President James Bullard due to speak at separate events, Tuesday
OPEC+ meeting on output, Wednesday
US factory orders, durable goods, ISM services, Wednesday
BOE rate decision, Thursday
US initial jobless claims, trade, Thursday
Cleveland Fed President Loretta Mester due to speak, Thursday
US employment report for July, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.4% as of 7:18 a.m. in London. The S&P 500 fell 0.3%
Nasdaq 100 futures shed 0.4%. The Nasdaq 100 fell 0.1%
Japan’s Topix index dropped 1.8%
Australia’s S&P/ASX 200 index rose 0.1%
South Korea’s Kospi index declined 0.5%
Hong Kong’s Hang Seng index fell 2%
China’s Shanghai Composite index was down 1.5%
Euro Stoxx 50 futures dropped 0.5%
Currencies
The Bloomberg Dollar Spot Index was steady
The euro was at $1.0255, down 0.1%
The Japanese yen was at 130.91 per dollar, up 0.5%
The offshore yuan was at 6.7769 per dollar, up 0.1%
Bonds
The yield on 10-year Treasuries declined two basis points to 2.55%
Australia’s 10-year yield fell 10 basis points to 2.96%
Commodities
West Texas Intermediate crude was at $93.87 a barrel
Gold was at $1,773.96 an ounce, up 0.1%
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