US futures and European bonds fall on economic problems

US stock index futures and European bond futures fell as investors fretted over the twin threats of slowing economic growth and stubborn inflation.

Contracts on the S&P 500 and Nasdaq 100 each fell by at least 0.3% after the underlying indexes posted their 11th decline in 13 weeks. European stocks rose for the first time in four days as buyers emerged. The dollar weakened after a report that the US could reduce tariffs on China. Italian bonds slumped as investors eyed domestic political tensions. US markets were closed for the Independence Day holiday.

Global stocks and bonds are on the brink of their worst sell-off in at least three decades, as the growing chances of a recession in the United States, or even the world, are spooking investors. At the same time, sticky inflation has left little room for the Federal Reserve to rein in monetary tightening. This toxic combination presents markets with a trade challenge not seen since the late 1970s.

“The market has started to care more about economic growth than just about the withdrawal of liquidity and inflation”Stephen Innes, managing partner at SPI Asset Management, wrote in a note. “Unlike previous recessions, inflation is much higher and unemployment is much lower. These dynamics delay any potential dovish pivot from the central bank despite the rapid shift in initial interest rate expectations over the past week..

The MSCI All-Country World Index, the global benchmark, plunged 21% in the first half, the worst year-to-date losses since at least 1988. Similarly, the 14% loss in the index Bloomberg’s global aggregate of investment-grade debt was its worst performance since 1990, the earliest date for which records are available.

The dollar fell on Monday, causing the euro and sterling to rise 0.3%. US President Joe Biden could announce the removal of some tariffs on Chinese imports as soon as this week, Dow Jones reported.

In Europe, the benchmark Stoxx 600 index rose 0.9%. Energy, commodities and telecommunications stocks gained the most.

Italian bonds fell ahead of a meeting between Prime Minister Mario Draghi and Five Star leader Giuseppe Conte to resolve weeks of political tensions. The nation’s 10-year yield jumped 12 basis points to 3.21%, widening its spread over German bonds to 1.90 percentage points.

In China, officials were trying to fend off a Covid outbreak that could hit an economically important region. That is yet another test of Beijing’s strategy of trying to eliminate the pathogen with massive testing and disruptive lockdowns.

Separately, developer Shimao Group Holdings Ltd. said it failed to pay a $1 billion promissory note due Sunday, one of the biggest dollar defaults so far this year in China.

Crude oil rose as traders weighed tight supplies against a global economic slowdown. Bitcoin held above the $19,000 level.