(Bloomberg) — Stocks slipped and Treasuries sold off across the curve Tuesday as oil jumped, adding to worries about how aggressive central banks will need to be to rein in inflation without derailing growth.
Europe’s Stoxx 600 Index was set to snap four days of gains, retreating from a one-month high, with technology stocks among the heaviest decliners. US futures erased their earlier advance.
Treasury yields jumped, joining a selloff in German bunds and European bonds Monday. German inflation hit an all-time high, adding to pressure on central-bank policy makers to tame rising prices. The dollar advanced.
Brent crude oil rose to above $120 a barrel after the European Union agreed to pursue a partial ban on Russian oil in response to the invasion of Ukraine. Higher energy and food costs are keeping upward pressure on prices globally and squeezing consumers.
Global stocks are on track to end the month with modest gains amid skepticism about whether the market is near a trough and as volatility stays elevated. Fears that central bank rate hikes will induce a recession, stubbornly high inflation and uncertainty around how China will boost its flailing economy are keeping investors watchful.
Among individual stock moves in Europe Tuesday, Credit Suisse Group AG dropped after a report that the bank is weighing options to strengthen its capital. Unilever Plc jumped as activist investor Nelson Peltz joined its board. Royal DSM NV soared after agreeing to form a fragrances giant by combining with Firmenich.
In Asian trading, technology stocks underpinned gains in Hong Kong, while China rose as data showed factory activity shrinking at a slower pace and Shanghai eased its Covid lockdown. Equities fell in Japan.
French inflation accelerated to another all-time high, data showed Tuesday, heaping pressure on the European Central Bank to lift interest rates more aggressively after strong readings in Germany and Spain. ECB officials are set to announce the conclusion of large-scale asset purchases and confirm plans to raise interest rates in July for the first time in more than a decade.
In the US, Federal Reserve Governor Christopher Waller said he wants to keep raising interest rates in half-percentage point steps until inflation is easing back toward the central bank’s goal.
Meanwhile, President Joe Biden will hold a rare Oval office meeting on Tuesday with Fed Chair Jerome Powell amid the highest inflation in decades and ahead of US payroll numbers later this week.
“This time, the Fed’s tightening cycle will be longer, and policy rates and bond yields will have to go higher than markets currently expect,” Franklin Templeton Fixed Income Chief Investment Officer Sonal Desai said in a note. “The corresponding risk to asset prices and economic growth is greater than many like to admit.”
Elsewhere, Bitcoin was back above $31,000 as investors and strategists said the digital currency is showing signs of bottoming out.
How will markets be affected by the Fed’s quantitative tightening? QT officially starts Wednesday and is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.
Here are some key events to watch this week:
- Euro zone CPI Tuesday
- The Federal Reserve is set to start shrinking its $8.9 trillion balance sheet Wednesday
- The Fed releases its Beige Book report on regional economic conditions Wednesday
- New York Fed President John Williams, St. Louis Fed President James Bullard speak at separate events Wednesday
- OPEC+ virtual meeting Wednesday
- Cleveland Fed President Loretta Mester discusses the economic outlook Thursday
- US May employment report Friday
- The UN’s Food and Agriculture Organization releases its monthly food price index at a time of maximum concern about global supplies on Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.5% as of 8:24 a.m. London time
- Futures on the S&P 500 fell 0.4%
- Futures on the Nasdaq 100 fell 0.1%
- Futures on the Dow Jones Industrial Average fell 0.4%
- The MSCI Asia Pacific Index rose 0.2%
- The MSCI Emerging Markets Index rose 0.8%
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.3% to $1.0744
- The Japanese yen fell 0.2% to 127.82 per dollar
- The offshore yuan was little changed at 6.6732 per dollar
- The British pound fell 0.3% to $1.2618
Bonds
- The yield on 10-year Treasuries advanced eight basis points to 2.81%
- Germany’s 10-year yield declined one basis point to 1.04%
- Britain’s 10-year yield was little changed at 1.98%
Commodities
- Brent crude rose 1.3% to $123.30 a barrel
- Spot gold was little changed
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