Stocks, Bonds Drop; China Data Flag Inflation Risk: Markets Wrap

(Bloomberg) — Stocks and bonds fell Monday on worries about inflation and tightening monetary policy, while the euro was supported by Emmanuel Macron’s lead in the first round of the French presidential vote.

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An Asia-Pacific equity gauge was at the lowest since mid-March amid drops in China and Hong Kong, including a slide in tech stocks. U.S. and Europe futures also dipped, pointing to more challenges for global shares after the Federal Reserve signaled sharp interest-rate hikes and balance-sheet reduction.

China’s factory gate prices increased more than expected in March, underlining the price pressures buffeting the world economy.

The U.S. 10-year Treasury yield climbed to 2.72%, around the highest since 2019. Real yields are getting closer to turning positive, a development that could be an impediment for risk assets. Australia’s 10-year bond yield hit 3% for the first time since 2015. A dollar gauge advanced.

The euro climbed as much as 0.7% versus the greenback before paring the gain. That suggests some relief over the French election but ongoing wariness, a backdrop that may filter into European markets later.

Investors have been fretting about the implications of a victory for Macron’s nationalist rival Marine Le Pen in the midst of the the war in Ukraine, given her longstanding sympathies for Russia. The question now is whether Macron can consolidate his advantage over Le Pen in the final round.

Market sentiment continues to be shaped by the hawkish Fed and inflation pressures from commodity-market disruptions caused by Russia’s invasion of Ukraine. China’s Covid lockdowns threaten to exacerbate supply-chain snarls, further stoking costs.

“Hawkish FOMC and ECB minutes pointing to a faster exit from stimulus have pushed global yields higher and widened country spreads,” Subadra Rajappa, head of U.S. rates strategy at Societe Generale, wrote in a client note. “Nervousness around a tighter French presidential election outcome has also contributed to the move.”

Federal Reserve Bank of Cleveland President Loretta Mester said she’s confident that the U.S. will avoid a recession as the Fed tightens policy, though the inflation rate will probably remain at more than 2% into next year.

Crude oil retreated, sapped by risks to demand from China’s worsening Covid outbreak and an extensive lockdown in Shanghai.

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

Russia said it will halt bond auctions for the remainder of 2022 due to prohibitive borrowing costs. The country’s first external default in a century now looks all but inevitable after Russia was sanctioned and isolated over the conflict.

In cryptocurrencies, Bitcoin was on the back foot, falling to about $42,100.

Events to watch this week:

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

  • China CPI, PPI, Monday

  • Chicago Fed President Charles Evans due to speak, Monday

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

  • U.S. CPI, Tuesday

  • OPEC monthly oil market report, Tuesday

  • Fed Governor Lael Brainard, Richmond Fed President Thomas Barkin due to speak, Tuesday

  • Bank of Canada rate decision, Wednesday

  • EIA crude oil inventory report, Wednesday

  • Reserve Bank of New Zealand rate decision, 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, Philadelphia Fed President Patrick Harker due to speak Thursday

  • U.S. stock and bond markets are among those closed for Good Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.4% as of 10:54 a.m. in Tokyo. The S&P 500 fell 0.3%

  • Nasdaq 100 futures fell 0.6%. The Nasdaq 100 fell 1.4%

  • Japan’s Topix index shed 0.5%

  • South Korea’s Kospi index dropped 0.3%

  • Australia’s S&P/ASX 200 Index rose 0.1%

  • Hang Seng Index fell 2%

  • Shanghai Composite Index fell 1.1%

Currencies

  • The Japanese yen was at 124.81 per dollar, down 0.4%

  • The offshore yuan was at 6.3699 per dollar

  • The Bloomberg Dollar Spot Index rose 0.1%

  • The euro rose 0.1% to $1.0887

Bonds

Commodities

  • West Texas Intermediate crude fell 2.2% to $96.12 a barrel

  • Gold was at $1,942.74 an ounce

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