US Treasuries retreated and stocks in Asia slumped amid concern that faster inflation will keep driving interest rates higher and geopolitical threats will crimp economic growth.
(Bloomberg) — US Treasuries retreated and stocks in Asia slumped amid concern that faster inflation will keep driving interest rates higher and geopolitical threats will crimp economic growth.
The yield on the policy-sensitive two-year Treasury rose to the highest since 2007, while the 10-year climbed more than 10 basis points to 3.99%. The 30-year yield surged to the highest since 2014.
The mood remains fragile ahead of Thursday’s US inflation data, with the case for another 75 basis-point rate hike likely to be strong if the data comes in hotter-than-expected.
In equities, chip-related stocks in Japan, South Korea and Taiwan posted some of the biggest losses after traders returned from holidays and joined the global selloff in semiconductor shares.
The Biden administration’s curbs on China’s access to US semiconductor technology has wiped out more than $240 billion from the sector’s market value globally and spilled over into the currency market, weighing on the Korean won and Taiwan dollar.
A measure of greenback strength climbed to the highest this month and the yen traded within sight of the original level that spurred Japanese authorities to defend the currency in September. The yuan slid as worry mounts that Beijing will uphold its Zero Covid policy well after the Chinese Communist Party Congress this month.
Investors continued to parse comments from Federal Reserve officials for any signs of a let up in the central bank’s hawkish stance. Vice Chair Lael Brainard laid out a case for caution, noting that previous rate increases were still working through the economy. Chicago Fed President Charles Evans said he wants to quickly get to a point where policy makers can feel comfortable pausing in order to reduce the risk of overshooting.
Fed officials have been trying to enunciate that they are not going to reverse rates quickly next year, according to Laura Fitzsimmons, executive director of macro sales at JPMorgan’s Australian unit. “And I think that’s a message that the market has needed to hear for some time now and it needs to become really entrenched in people’s expectations,” she said on Bloomberg Television.
The heads of the International Monetary Fund and World Bank warned of a rising risk of a global recession as advanced economies slow and faster inflation forces the Fed to keep raising interest rates, adding to the debt pressures on developing nations.
Meanwhile, Russian President Vladimir Putin threatened further missile attacks on Ukraine after hitting Kyiv and other cities in the most intense barrage of strikes since the first days of its invasion, marking a dangerous new escalation in the war.
“It’s little wonder investors enter the week in a dreary mood, especially with headlines from Ukraine signaling a further escalation in geopolitical tensions,” Christopher Smart, chief global strategist at Barings, said in a note. “Of course, markets are meant to look ahead, but it’s hard not to see the next few quarters bringing more of the same.”
Oil markets slipped as concerns of slowing demand again came to the fore, adding resistance to a rally spurred by OPEC+’s output cut. Gold remained under pressure after ending the previous volatile session lower.
Key events this week:
- Earnings this week include: JPMorgan Chase & Co., Citigroup Inc., Morgan Stanley, BlackRock Inc., Delta Air Lines Inc., UnitedHealth Group Inc., U.S. Bancorp, Wells Fargo & Co.
- IMF’s World Economic Outlook and Global Financial Stability Report, Tuesday
- Fed’s Loretta Mester speaks, Tuesday
- BOE’s Andrew Bailey speaks, Tuesday
- FOMC minutes for September meeting, Wednesday
- US PPI, mortgage applications, Wednesday
- OPEC Monthly Oil Market Report, Wednesday
- Fed’s Michelle Bowman and Neel Kashkari speak
- ECB’s Christine Lagarde speaks
- US CPI, initial jobless claims, Thursday
- G-20 finance ministers and central bankers meet, Thursday
- China CPI, PPI, trade, Friday
- US retail sales, business inventories, University of Michigan consumer sentiment, Friday
- BOE emergency bond buying is set to end, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.5% as of 7:09 a.m. London time. The S&P 500 fell 0.7% on Monday
- Nasdaq 100 futures were down 0.4%. The Nasdaq 100 fell 1%
- The Topix Index fell 1.9%
- The Kospi index was down 2%
- The Hang Seng Index fell 1.6%
- The Shanghai Composite Index rose 0.1%
- S&P/ASX 200 Index fell 0.3%
- Euro Stoxx 50 futures fell 0.4%
Currencies
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro fell 0.2% to $0.9684
- The Japanese yen was little changed at 145.79 per dollar
- The offshore yuan fell 0.5% to 7.1892 per dollar
- The British pound fell 0.4% to $1.1013
Cryptocurrencies
- Bitcoin fell 1% to $19,043
- Ether fell 2.4% to $1,275
Bonds
- The yield on the 10-year Treasury climbed nearly 11 basis points to 3.99%
- Australia’s 10-year yield advanced 17 basis points to 4.04%
Commodities
- West Texas Intermediate crude fell 0.5% to $90.66 a barrel
- Gold was little changed
(An earlier version of this story was corrected to add missing reference to the 10-year Treasury yield)
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