Bonds Drop, U.S. Futures Slip on Inflation Risks: Markets Wrap

(Bloomberg) — Bonds extended a selloff Monday and stocks wavered amid worries about inflation and monetary tightening. Emmanuel Macron’s lead in the first round of the French presidential vote aided the euro.

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Equities fell in Japan and fluctuated in South Korea and Australia. U.S. futures dipped, pointing to more challenges for global shares after the Federal Reserve signaled sharp interest-rate hikes and balance-sheet reduction to tackle price pressures.

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. A dollar gauge is hovering at levels last seen in 2020. Australia’s 10-year bond yield hit 3% for the first time since 2015.

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.

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

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 challenge threatens to exacerbate supply-chain snarls, further stoking costs.

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“Today, the mantra for many investors is ‘Don’t fight the Fed when it is fighting inflation,’” Ed Yardeni, president of Yardeni Research, wrote in a note. “We agree with that, but it’s not as bearish as it sounds,” in part because accumulated excess liquidity and an inflation boost to earnings are beneficial for stocks, he added.

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.

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 0.3% as of 8:25 a.m. in Tokyo. The S&P 500 fell 0.3%

• Nasdaq 100 futures fell 0.4%. The Nasdaq 100 fell 1.4%

• Japan’s Topix index shed 0.2%

• South Korea’s Kospi index was steady

• Australia’s S&P/ASX 200 Index rose 0.2%

• Hang Seng Index futures fell 0.2% earlier

Currencies

• The Japanese yen was at 124.48 per dollar, down 0.1%

• The offshore yuan was at 6.3735 per dollar, down 0.1%

• The Bloomberg Dollar Spot Index was little changed

• The euro rose 0.1% to $1.0885

Bonds

Commodities

• West Texas Intermediate crude fell 1.4% to $96.92 a barrel

• Gold was at $1,945.21 an ounce

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