Stocks and bonds fell Monday as political and economic risks weighed on sentiment. A gauge of the dollar was little changed.
Europe’s Stoxx 600 slipped and the euro rose after the first round of France’s presidential election gave incumbent Emmanuel Macron a narrow lead over nationalist challenger Marine Le Pen. Technology stocks were the biggest drag on the gauge, while banks outperformed on rising bond yields.
U.S. futures declined, pointing to more challenges for global shares after the Federal Reserve last week signaled sharp interest-rate hikes and balance-sheet reduction to curb price pressures. Chinese stocks also fell, weighed down by the mainland’s Covid outbreak, elevated factory-gate prices and regulatory concerns in the technology sector.
Oil retreated on risks to demand from China’s Covid lockdowns, including extensive curbs in Shanghai.
Meanwhile, Russian Railways JSC has been ruled to be in default after missing an interest payment last month, a governing panel said. 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.
Market sentiment continues to be shaped by a hawkish Fed, commodity-market disruptions caused by Russia’s invasion of Ukraine and the prospect of an economic slowdown. China’s Covid curbs threaten to exacerbate supply-chain snarls, further stoking inflation risks. Investors are awaiting quarterly earnings reports this month to restore confidence in the outlook for equities.
“Today, the mantra for many investors is ‘Don’t fight the Fed when it is fighting inflation,’” Ed Yardeni, president of Yardeni Research, wrote in a note. “We agree with that, but it’s not as bearish as it sounds” in part because accumulated excess liquidity and an inflation boost to earnings are props for stocks, he added.
Cleveland Fed President Loretta Mester said she’s confident that the U.S. will avoid a recession as the Fed tightens policy, though the inflation rate will probably remain at more than 2% into next year. Real U.S. yields are getting closer to turning positive, a development that could be an impediment for risk assets.
The yen weakened to its lowest against the dollar since 2015 as rising Treasury yields boost the greenback’s allure.
Meanwhile, German Foreign Minister Annalena Baerbock said Ukraine needs more military support, including heavy weapons, as Ukraine reported Russian missile attacks and said it expects Russia to widen its offensive in the east this week.
Austria’s Chancellor Karl Nehammer said he’ll meet President Vladimir Putin in Moscow on Monday, while a new commander for the Russian troops on the ground is raising alarm among U.S. officials.
Separately, Iran said the 2015 nuclear deal is alive but lingering in the “emergency room,” with its fate resting on a decision by the U.S. that could lift sanctions on Tehran’s economy and oil exports.
Events to watch this week:
- Earnings season kicks off, including reports from Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, Taiwan Semiconductor Manufacturing, Wells Fargo
- Chicago Fed President Charles Evans due to speak, Monday
- EU foreign ministers meet, more Russia measures on the agenda, Monday
- 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:
- The Stoxx Europe 600 fell 0.5% as of 10:25 a.m. London time
- Futures on the S&P 500 fell 0.5%
- Futures on the Nasdaq 100 fell 1%
- Futures on the Dow Jones Industrial Average fell 0.2%
- The MSCI Asia Pacific Index was little changed
- The MSCI Emerging Markets Index rose 0.2%
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.3% to $1.0915
- The Japanese yen fell 0.8% to 125.38 per dollar
- The offshore yuan fell 0.1% to 6.3790 per dollar
- The British pound was little changed at $1.3034
- The yield on 10-year Treasuries advanced four basis points to 2.74%
- Germany’s 10-year yield advanced six basis points to 0.77%
- Britain’s 10-year yield advanced six basis points to 1.81%
- Brent crude fell 2.5% to $100.24 a barrel
- Spot gold rose 0.5% to $1,958.01 an ounce