Dow futures drop on worries over U.S. and China

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U.S. stock futures slumped on Friday, amid fears over the delta variant of coronavirus, the imminent tapering of Federal Reserve bond buying and Chinas restrictions on its domestic economy.

Whats happening

On Thursday, major markets ended mixed, with the S&P 500 SPX, +0.13% and Nasdaq Composite COMP, +0.11% registering small gains, while the small-cap Russell 2000 RUT, -1.22% ended 1.2% lower.

Whats driving markets

With no U.S. economic data and few corporate news releases, traders will be left to focus on the developments from earlier this week.

The key 10-year yields TMUBMUSD10Y, 1.240% were barely changed as equities reversed: suggesting that the move was more about the top-down risks to growth building, specifically around the delta variant, after several weeks when the bottom-up corporate news has provided support, said Ian Williams, a strategist at U.K. broker Peel Hunt.

Michael Hartnett, chief investment strategist at Bank of America, says the market is acting in a recessionary fashion.

The U.S. yield curve, as measured by the gap between the 5- TMUBMUSD05Y, 0.768% and 30-year TMUBMUSD30Y, 1.867% bonds, is at a one-year low; global stocks excluding U.S. techs are unchanged the last eight months; emerging market stocks are negative this year; small cap stocks are breaking down; a range of commodities have fallen by double-digit percentages from highs; and the top four sectors of the S&P 500 in the second half of the year are utilities, health care, REITs and staples.

I spent $32 trillion and all I got was this lousy W-shape recovery, he quipped.

The Hang Seng HSI, -1.84% suffered through another rough session, falling 1.8% in Hong Kong, as the index is now 19% below its February highs on the continued regulatory crackdown in China. China on Friday passed a strict data privacy law thats due to take effect in November.

The VIX VIX, +2.31% measure of stock market volatility jumped in the early hours, and the dollar DXY, +0.09% reached a fresh nine-month high.

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