Stocks and bonds retreated Monday as investors focused on inflation and the impact of policy tightening by central banks.
All major groups in the S&P 500 fell, while the tech-heavy Nasdaq 100 lost more than 2%. Ten-year Treasury yields climbed through 2.75% for the first time since March 2019 after the Federal Reserve last week signaled sharp rate hikes and balance-sheet reduction to curb price pressures. Oil sank as China’s largest coronavirus outbreak in two years heightens concerns about demand. Bitcoin traded near $40,000.
Market sentiment continues to be shaped by a hawkish Fed, commodity disruptions caused by Russia’s invasion of Ukraine and the prospect of an economic slowdown. China’s Covid-19 outbreak continues to spread despite an extended lockdown of Shanghai’s 25 million people, with the restrictions straining global supply chains. Investors are awaiting earnings reports this month to restore confidence in the outlook for equities.
“Inflation, monetary policy jitters, Shanghai shutdown, and Russian invasion of Ukraine hold markets hostage,” wrote John Stoltzfus, chief investment strategist at Oppenheimer. “Markets remain prone to rotation and rebalancing for now as multiplicities of uncertain outcomes cause volatility and no shortage of pondering and projection.”
Charles Evans, the Fed Bank of Chicago president who has long been one of the more dovish U.S. policy makers, said an accelerated pace of rate hikes to combat inflation is worth debating. The central bank is doing all it can to avoid “collateral damage” from raising interest rates, a “brute-force tool” that can act as a “hammer” on the economy, Governor Christopher Waller said.
The credit derivatives market ruled Russian Railways JSC to be in default after missing an interest payment last month. Russia said it would halt bond sales for the rest of the year and take legal action if sanctions force it into a sovereign default.
Events to watch this week:
- Earnings season kicks off, including reports from Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, Taiwan Semiconductor Manufacturing, Wells Fargo
- 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
- The S&P 500 fell 1.7% as of 4 p.m. New York time
- The Nasdaq 100 fell 2.4%
- The Dow Jones Industrial Average fell 1.2%
- The MSCI World index fell 1.3%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was little changed at $1.0884
- The British pound was little changed at $1.3023
- The Japanese yen fell 0.9% to 125.41 per dollar
Bonds
- The yield on 10-year Treasuries advanced seven basis points to 2.77%
- Germany’s 10-year yield advanced 11 basis points to 0.82%
- Britain’s 10-year yield advanced 10 basis points to 1.85%
Commodities
- West Texas Intermediate crude fell 3.4% to $94.92 a barrel
- Gold futures rose 0.6% to $1,957.70 an ounce
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