Wednesday, May 25

Stocks Set for Mixed Start Amid Bond, Oil Selloff: Markets Wrap


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(Bloomberg) — Stocks in Asia are set for a cautious start Tuesday amid a selloff in bonds and oil as economic threats from high inflation, tightening monetary policy and China’s Covid lockdowns ripple across markets.

Equity futures slipped in Japan and Australia, while US contracts wavered, after a broad S&P 500 retreat and another slump in the tech-heavy Nasdaq 100, which has shed over $1 trillion in value in the past five sessions.

Hong Kong futures bucked the gloom, potentially reflecting China’s approval of the first batch of new video game licenses since July. That step may ease some of the worst concerns about Beijing’s gaming-sector crackdown.

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Longer-maturity US Treasuries slumped, taking the 10-year yield to 2.78%, as the global bond rout continued. A dollar gauge cemented its longest winning streak since 2020. Both trends reflect expectations that the Federal Reserve will implement its fastest policy tightening since 1994.

Oil steadied after a tumble that saw crude erase most of the gains sparked by Russia’s invasion of Ukraine. China’s virus outbreaks and mobility curbs, in pursuit of a controversial Covid-zero strategy, are imperiling demand.

The next major test for markets looms later Tuesday, when the US is expected to unveil an inflation print for March of more than 8%. While that could mark the peak, there are fears that price pressures will remain elevated. The Ukraine war is disrupting flows of essential commodities, and China’s lockdowns are straining supply chains.

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“What we’re faced with this year is stagflation,” Kathryn Rooney Vera, head of global macro research at Bulltick LLC, said on Bloomberg Television. “It’s a very complicated environment that the Fed has found itself in” and the market is pricing in potentially 50 basis points of hikes at each of the next two policy meetings, she added.

Charles Evans, the Fed Bank of Chicago president who has long been one of the more dovish US 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, Fed Governor Christopher Waller said.

Meanwhile, 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.

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Elsewhere, Bitcoin sank, part of broad weakness in cryptocurrencies, pushing the world’s largest digital token below $40,000.

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, TuesdayOPEC monthly oil market report, TuesdayFed Governor Lael Brainard, Richmond Fed President Thomas Barkin due to speak, TuesdayBank of Canada rate decision, WednesdayEIA crude oil inventory report, WednesdayReserve Bank of New Zealand rate decision, WednesdayChina trade, medium-term lending facilities, WednesdayECB rate decision, ThursdayBank of Korea policy decision, ThursdayU.S. retail sales, initial jobless claims, business inventories, University of Michigan consumer sentiment, ThursdayCleveland Fed President Loretta Mester, Philadelphia Fed President Patrick Harker due to speak ThursdayU.S. stock and bond markets are among those closed for Good Friday

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Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.1% as of 7:14 am in Tokyo. The S&P 500 fell 1.7%Nasdaq 100 futures rose 0.1%. The Nasdaq 100 fell 2.4%Nikkei 225 futures dropped 0.5%Australia’s S&P/ASX 200 Index futures fell 0.3% Hang Seng Index futures rose 1.4%

Currencies

The Japanese yen traded at 125.43 per dollarThe offshore yuan was at 6.3882 per dollarThe Bloomberg Dollar Spot Index rose 0.1% MondayThe euro was little changed at $1.0884

Bonds

The yield on 10-year Treasuries advanced eight basis points to 2.78% Monday

Commodities

West Texas Intermediate crude rose 1% to $95.22 a barrelGold was at $1,952.38 an ounce

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