Stocks, Treasuries Crash on Inflation, Political Risks: Markets Pull Back

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(Bloomberg) – U.S. stocks and equity futures fell along with Treasuries on Monday amid heightened concerns about inflation risks and tighter financial conditions. A dollar gauge climbed.

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An Asia-Pacific stock index lost more than 1%, falling to the lowest since mid-March. China and Hong Kong struggled, with tech stocks skidding on new guidelines from Beijing aimed at curbing data monopolies on internet platforms.

U.S. and European futures also fell, pointing to fresh challenges for global equities after the Federal Reserve signaled sharp interest rate hikes and a balance sheet shrinkage last week to curb price pressures.

The 10-year Treasury yield touched 2.77%, topping the equivalent rate on Chinese debt for the first time since 2010. risk. Australia’s 10-year rate hit 3% for the first time since 2015.

Oil resumed its decline on demand risks from the Covid outbreak and lockdowns in China, including sweeping restrictions in Shanghai.

Market sentiment continues to be shaped by the hawkish Fed and inflationary pressures resulting from commodity market disruptions caused by Russia’s invasion of Ukraine. Covid restrictions in China threaten to exacerbate supply chain groans, further driving up costs. Ex-factory prices in the country rose more than expected in March.

“The mantra for many investors today is ‘Don’t fight the Fed when it’s fighting inflation,'” Ed Yardeni, president of Yardeni Research, wrote in a note. “We’re okay with that, but it’s not as bearish as it sounds” in part because the accumulation of excess cash and an increase in earnings inflation are props for stocks , he added.

Cleveland Fed President Loretta Mester said she is confident the United States will avoid a recession as the Fed tightens policy, although the inflation rate is likely to remain above 2% next week. next year.

European swings

The euro climbed as much as 0.7% against the greenback before paring the gain after Emmanuel Macron emerged from the first round of the French presidential election with a slight advantage over his nationalist rival Marine Le Pen.

Investors are worried about the implications of a Le Pen victory amid war in Ukraine, given his longstanding sympathy for Russia.

Russia has appointed a new commander for its operations in Ukraine. Moscow is refocusing its war effort to the east, having failed to secure the territory around the capital, kyiv.

Russia has said it will halt bond auctions for the rest of 2022 due to prohibitive borrowing costs. The country’s first external default in a century now looks almost inevitable after being sanctioned and isolated during the conflict.

In cryptocurrencies, Bitcoin was down, falling below $42,000.

Events to watch this week:

  • Earnings season kicks off, including reports from Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, Taiwan Semiconductor Manufacturing, Wells Fargo

  • Chicago Fed President Charles Evans is due to speak on Monday

  • EU foreign ministers meet, more Russian measures on the agenda, Monday

  • US CPI, Tuesday

  • OPEC’s monthly oil market report, Tuesday

  • Fed Governor Lael Brainard and Richmond Fed Chairman Thomas Barkin are scheduled to speak on Tuesday

  • Bank of Canada rate decision Wednesday

  • EIA Crude Oil Inventory Report, Wednesday

  • Reserve Bank of New Zealand rate decision on Wednesday

  • China Trade, Medium-Term Lending Facilities, Wednesday

  • ECB rate decision Thursday

  • Bank of Korea policy decision Thursday

  • U.S. Retail Sales, Initial Jobless Claims, Business Inventories, University of Michigan Consumer Sentiment, Thursday

  • Cleveland Fed President Loretta Mester and Philadelphia Fed President Patrick Harker are scheduled to speak on Thursday

  • US stock and bond markets are among those closed for Good Friday

Some of the major movements in the markets:

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  • S&P 500 futures fell 0.6% at 11:58 a.m. in Tokyo. The S&P 500 fell 0.3%

  • Nasdaq 100 futures fell 0.8%. The Nasdaq 100 fell 1.4%

  • Japan’s Topix index loses 0.6%

  • South Korea’s Kospi index fell 0.6%

  • Australia’s S&P/ASX 200 index held steady

  • Hong Kong’s Hang Seng index fell 2.6%

  • China’s Shanghai Composite Index fell 2%

  • Euro Stoxx 50 futures fell 0.6%

Currencies

  • The Japanese yen was at 124.86 to the dollar, down 0.4%

  • The offshore yuan was at 6.3801 to the dollar, down 0.2%

  • The Bloomberg Dollar Spot Index rose 0.2%

  • The euro was at $1.0877

Obligations

Merchandise

  • West Texas Intermediate crude fell 2.3% to $96.01 a barrel

  • Gold was at $1,943.06 an ounce

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