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Stocks, futures dip post CPI; treasuries pare drop: markets wrap

The 10-year US Treasury yield eased to about 1.4% and the dollar trimmed earlier gains.

Most Asian stocks fell Wednesday and Treasuries pared a decline as investors evaluated a surprise US inflation jump that stirred the debate on how long Federal Reserve policy can stay ultra-loose.

Shares in Japan, Hong Kong and China retreated. Australian equities made modest gains despite a two-week extension to Sydney’s lockdown to tackle an outbreak of the Covid-19 delta strain. S&P 500 futures dropped after the index slipped from a record. Nasdaq 100 contracts edged down. US releases overnight showed the highest inflation since 2008, as well as mixed earnings from JPMorgan Chase & Co. and Goldman Sachs Group Inc.

The 10-year US Treasury yield eased to about 1.4% and the dollar trimmed earlier gains. The Treasury yield curve was volatile overnight: a flattening move following the inflation data reversed as weak demand at a 30-year bond auction drove yields on this maturity higher.

The New Zealand dollar led gains among the Group-of-10 currencies after the nation’s central bank said it will end quantitative easing this month, a surprise move that led traders to price in an interest-rate increase as early as August.

The June US inflation print topped all forecasts and pointed to higher costs associated with the reopening from the pandemic. Fed officials have said they expect such pressures to be transitory but some commentators see a risk of more durable increases that could force a quicker-than-expected reduction in stimulus. Traders will be scrutinizing testimony due from Fed Chair Jerome Powell this week.

“The debate is centered around where will inflation settle when things normalise about a year from now — is it north of 2% or south of 2%?” Jimmy Chang, chief investment officer at Rockefeller & Co., said on Bloomberg Television, adding he expects Powell to sound “fairly dovish.”

Global stocks remain close to a record and a range of other factors are influencing the outlook. They include the spread of the more contagious Covid-19 delta variant, the possibility of a peak in earnings and economic growth, and US fiscal spending plans.

On the latter, Senate Democrats on the Budget Committee agreed to set a top line of $3.5 trillion for a bill to carry most of President Joe Biden’s economic agenda into law without Republican support. Adding in the bipartisan infrastructure plan takes the long-term agenda past $4 trillion.

China’s clampdown on its internet giants is also continuing. Cathie Wood’s Ark Investment Management has been selling Chinese tech stocks, with holdings in one of the firm’s funds falling to the lowest on record.

Oil edged down after touching the highest in more than 2 1/2 years on signs of a rapidly tightening global market. Bitcoin retreated to trade around the $32 000 level.

Here are some events to watch this week:

  • Bank of Korea monetary decision Thursday.
  • China second-quarter GDP, key economic indicators Thursday.
  • Federal Reserve Chair Jerome Powell appears before the Senate Banking Committee to deliver the semi-annual Monetary Policy Report to Congress Thursday.
  • Bank of Japan interest rate decision Friday.

These are some of the main moves in financial markets:

Stocks

  • S&P 500 futures fell 0.2% as of 7:15 a.m. London. The S&P 500 fell 0.4%
  • Nasdaq 100 futures shed 0.1%. The Nasdaq 100 was little changed
  • Japan’s Topix index dipped 0.2%
  • Australia’s S&P/ASX 200 Index rose 0.3%
  • South Korea’s Kospi index fell 0.2%
  • Hong Kong’s Hang Seng Index lost 0.8%
  • China’s Shanghai Composite Index dipped 1%
  • Euro Stoxx 50 futures shed 0.2%

Currencies

  • The Japanese yen was at 110.51 per dollar, up 0.1%
  • The offshore yuan was at 6.4778 per dollar
  • The Bloomberg Dollar Spot Index dipped 0.1%
  • The euro traded at $1.1788, up 0.1%

Bonds

  • The yield on 10-year U.S. Treasuries dipped about two basis points to 1.40%
  • Australia’s 10-year bond yield rose two basis points to 1.35%

Commodities

  • West Texas Intermediate crude dropped 0.2% to $75.10 a barrel
  • Gold was at about $1 813 an ounce, up 0.3%
© 2021 Bloomberg

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