US stock futures slip as worries about recession trump optimism over US easing of China tariffs

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US stock futures reversed earlier gains and slipped into the red Tuesday as pessimism about the global economy overwhelmed any optimism about the US possibly relaxing tariffs on China.

S&P 500 futures were down 0.52% as of 5.50 a.m. ET. Dow Jones futures were 0.48% lower, and Nasdaq 100 futures fell 0.7%, with US equity markets set to reopen after the July 4 holiday.

Futures rose earlier in the session, with some investors cheered by signs that the US and China might come to an agreement that could allow the easing of tariffs put in place under former President Donald Trump.

US Treasury Secretary Janet Yellen had a virtual meeting with Chinese Vice Premier Liu He on Tuesday, in which they discussed the global economy. The Wall Street Journal reported President Joe Biden is planning to scrap some of the China tariffs in an effort to ease the strain on global supply chains.

However, futures dipped back into negative territory, as investors became increasingly concerned about the risks to the global economy from central banks tightening interest rates to try to cool inflation. Prices across the global economy have been inflamed by high energy prices stemming from Russia’s invasion of Ukraine.

European stocks fell in morning trading, with the continent-wide Stoxx 600 down 0.85%. Asian stocks were mixed overnight, with China’s CSI 300 closing 0.14% lower, but Japan’s Nikkei 225 rising 1.03%.

“High inflation, ongoing political tensions and policy tightening make the current situation incredibly challenging for investors,” said Joe Little, chief strategist at HSBC Asset Management, in the company’s mid-year outlook Tuesday.

“Nonetheless, we think there is scope for better market performance later in 2022 if inflation cools and if central bankers can adopt a more balanced stance.”

The euro tumbled to a 20-year low against the dollar as investors worried about the eurozone economy, which is particularly vulnerable to the huge surge in natural gas prices seen this year.

Benchmark European natural gas futures were up more than 7% to their highest level in four months as traders worried about supplies, with strikes in Norway potentially disrupting flows.

Traders have dialed down their bets that the European Central Bank will hike interest rates hard, which has cooled European bond yields and made the euro look less attractive. The currency was down 1.29% to $1.0291 Tuesday.

The yield on the 10-year US Treasury note, the most closely watched government bond, was little changed Tuesday at 2.887%. The yield, which moves inversely to the price, has fallen in recent days as investors have sought the safety of government bonds.

Brent crude oil was down 1.15% at $112.20 a barrel. After trading was closed Monday for the holiday, WTI crude was up 0.63% to $108.81 a barrel.