(Bloomberg) — European equities joined a global selloff following a surprise American inflation print that heaped pressure on the Federal Reserve to intensify monetary tightening. Treasury yields traded at a multi-year high.
The Stoxx 600 dropped 1.3% to its lowest since early March, S&P 500 futures sank as much as 2.1%, and Nasdaq 100 futures were down by as much as 2.5%.
with the underlying index near a bear market after Friday’s shock consumer prices report ignited a more than $1 trillion selloff.
Yields on 10-year US Treasuries reached 3.24%, the highest since October 2018, and a selloff in European government bonds also gathered pace, with the yield on German’s two-year government debt rising above 1% for the first time in more than a decade.
The global exodus from stocks and bonds is gaining momentum on fears that inflation will force central banks to squash economic growth with higher interest rates.
“At some point financial conditions will tighten enough and/or growth will weaken enough such that the Fed can pause from hiking,” Goldman Sachs Group Inc.
strategists including Zach Pandl wrote in a note. “But we still seem far from that point, which suggests upside risks to bond yields, ongoing pressure on risky assets, and likely broad US dollar strength for now.”
Treasury yields rose across the curve, led by shorter maturities, with the two-year rising as much as 12 basis points to the highest level since late 2007.
Yields on 30-year Treasuries are below those on five-year notes, pointing to fears that sharp Fed interest-rate hikes will spark a hard economic landing.
The dollar climbed while the yen weakened to a 24-year low.
Oil and iron ore paced declines among growth-sensitive commodities.
Poor sentiment was also evident in a cryptocurrency slide that took Bitcoin below $25,000 to the lowest in 18 months.
Many investors expect half-point Fed rate hikes this week and again in July and September.
Barclays Plc and Jefferies LLC said an even bigger 75-basis-point move is possible at the June meeting.
The volatility in Treasuries “can’t be anything that any central bank would welcome,” Sonal Desai, Franklin Templeton’s fixed income chief investment officer, said on Bloomberg Television.
“We’re going to see more of the same. It’s not going to be a nice, smooth grind upwards. The Fed is going to need to do more.”
The US consumer price index rose 8.6% in May from a year earlier — a fresh 40-year high — in a broad-based advance, adding to a slate of troubling inflation data globally.
What to watch this week:
- First WTO ministerial meeting in nearly five years.
Through June 15.
- ECB’s Luis De Guindos due to speak, Monday.
- US PPI, Tuesday.
- China key economic activity data, liquidity operations, medium-term lending facility, Wednesday.
- FOMC rate decision, Chair Jerome Powell briefing, US business inventories, empire manufacturing, retail sales, Wednesday.
- ECB President Christine Lagarde due to speak, Wednesday.
- Bank of England rate decision, Thursday.
- US housing starts, initial jobless claims, Thursday.
- Bank of Japan policy decision, Friday.
- Eurozone CPI, Friday.
- US Conference Board leading index, industrial production, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 1.3% as of 8:58 a.m.
London time
- Futures on the S&P 500 fell 2%
- Futures on the Nasdaq 100 fell 2.4%
- Futures on the Dow Jones Industrial Average fell 1.6%
- The MSCI Asia Pacific Index fell 2.8%
- The MSCI Emerging Markets Index fell 3.1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.6%
- The euro fell 0.5% to $1.0465
- The Japanese yen fell 0.2% to 134.66 per dollar
- The offshore yuan fell 0.3% to 6.7505 per dollar
- The British pound fell 0.6% to $1.2236
Bonds
- The yield on 10-year Treasuries advanced six basis points to 3.22%
- Germany’s 10-year yield advanced two basis points to 1.53%
- Britain’s 10-year yield advanced two basis points to 2.47%
Commodities
- Brent crude fell 1.8% to $119.83 a barrel
- Spot gold fell 0.8% to $1,857.31 an ounce
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