U.S. futures pare gains as European stocks retreat

US equity futures pared gains on Tuesday and a rebound in European stocks proved short-lived, suggesting markets aren’t out of the woods.

S&P 500 contracts came off session highs to trade around 0.5 per cent, signaling some relief after Monday’s plunge that erased US$1.3 trillion in market capitalization and sent the gauge into a bear market. Futures on the Nasdaq 100 climbed about 0.7 per cent. The dollar was steady near a two-year high and Treasuries held gains after the 10-year yield had soared to a peak last seen in 2011. The yield curve remained flat, however, underscoring worries about an economic downturn sparked by tighter monetary policy.

The Stoxx Europe 600 index extended its decline to a seventh day, on track for the longest losing streak since the start of the pandemic and the lowest closing level in 15 months. Bonds in most of Europe edged lower, but gilts bucked the trend after data showed spending power of UK households plunged as inflation eroded wage increases.

This quarter is set to deliver the biggest combined loss for global bonds and stocks on record, in data going back to 1990. The highest inflation in a generation, stoked by supply-chain and commodity-market disruptions amid China’s COVID struggles and the war in Ukraine, is roiling the outlook. The big question is whether the Fed and other major central banks will tip their economies into recession as they tighten financial conditions.