Global Rout Deepens as Outsized Rate Hike in Play: Markets Wrap

(Bloomberg) -- A global selloff intensified following a surprise American inflation print that heaped pressure on the Federal Reserve to step up monetary tightening. Treasury yields traded at a multi-year high.

S&P 500 futures sank 2.5% and Nasdaq 100 contracts slid 3.1%. The S&P 500 is flirting with a bear market after Friday’s shock consumer prices report ignited a more than $1 trillion selloff. The Stoxx 600 traded at its lowest level since early March.

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 exodus from stocks and bonds is gaining momentum on fears that central banks’ battle against inflation will end up killing economic growth. Inversions along the Treasury yield curve point to fears that sharp Fed interest-rate hikes will spark a hard landing.

“The Fed will not be able to pause tightening let alone start easing,” said James Athey, investment director at abrdn. “If all global central banks deliver what’s priced there are going to be some significant negative shocks to economies.”

Traders are now pricing in 175 basis points of Fed tightening by September, implying two half-point and one 75 basis points hike. If that comes to pass it would be the first time since 1994 the Fed resorted to such a draconian measure.

Read more: US Bond Market Flashes Recession Warning as Yield Curve Inverts

Meanwile, 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.

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

• Futures on the S&P 500 fell 2.5% as of 5:51 a.m. New York time
• Futures on the Nasdaq 100 fell 3.1%
• Futures on the Dow Jones Industrial Average fell 2%
• The Stoxx Europe 600 fell 2.2%
• The MSCI World index fell 1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.7%
• The euro fell 0.5% to $1.0464
• The British pound fell 0.9% to $1.2208
• The Japanese yen was little changed at 134.49 per dollar

Bonds

• The yield on 10-year Treasuries advanced eight basis points to 3.23%
• Germany’s 10-year yield advanced five basis points to 1.56%
• Britain’s 10-year yield advanced three basis points to 2.48%

Commodities

• West Texas Intermediate crude fell 1.4% to $119 a barrel
• Gold futures fell 0.9% to $1,859.20 an ounce

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