Dow Futures 115 Pts Lower; Hedge Fund Chaos Weighs on Sentiment

© Reuters.

By Peter Nurse   

Investing.com - U.S. stocks are seen opening lower Monday, retreating from Friday’s record highs as investors fret about the potential fallout from U.S. hedge fund Archegos Capital defaulting on margin calls.

At 7:05 AM ET (1205 GMT), the Dow Futures contract was down 115 points, or 0.3%, S&P 500 Futures traded 11 points, or 0.3%, lower, and Nasdaq 100 Futures dropped 5 points, or 0.1%.

All three major benchmarks closed higher in volatile trading Friday, with the blue-chip Dow Jones Industrial Average closing about 450 points, or 1.4%, higher at a record high. The broad S&P 500 climbed 1.7% to also hit a record close, and the Nasdaq Composite ended Friday 1.2% higher.

However, these gains hid some sharp selling in companies linked to Archegos, with the likes of Discovery (NASDAQ:DISCA) and ViacomCBS (NASDAQ:VIAC) both tumbling over 25% on Friday. 

Continuing the theme, Nomura (T:8604) said early Monday it faced a possible $2 billion loss due to transactions with a U.S. client, while Credit Suisse (SIX:CSGN) warned of a “highly significant” hit to results due to its exposure to a single client.

Fears that the impact will not be confined to these two banks are putting markets on edge about the scale of the possible fallout. The stocks of both Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) are both down premarket.

However, losses are currently seen limited with investors overall buoyed by expectations of strong U.S. economic growth given hefty amounts of fiscal and monetary stimuli as well as a successful vaccination program.

President Joe Biden is expected to add to this stimulus when he unveils his infrastructure plan later this week, which could cost more than $3 trillion. Although there are doubts the whole package will get through Congress, the U.S. economy is still likely to get another hefty injection of cash.

The first quarter winds down this week, and this could prompt more volatility trading, particularly as it’s a holiday-shortened week. The March jobs report is still slated for release on Good Friday, with investors looking for another strong report, particularly as jobless claims fell to a one-year low last week.

Oil prices pushed higher Monday as traders turned their attention away from the disruption of traffic through the Suez Canal and towards the week’s upcoming meeting of the globe’s main producers.

The latest talk ahead of the meeting of the Organization of Petroleum Exporting Countries and its allies, known as OPEC+, suggests that Russia supports the group rolling over its current oil output into May, with only a small rise for itself.

Back in the canal, the container ship has been partially refloated, raising the possibility that it may be freed in the near future, thus unblocking the key waterway.

U.S. crude futures traded 1.1% lower at $61.62 a barrel, while the Brent contract rose 1.2% to $65.23. Both benchmarks are still set to post a fourth consecutive quarterly gain this week.

Elsewhere, gold futures fell 0.3% to $1,726.80/oz, while EUR/USD traded 0.2% lower at 1.1765.