Stocks, Bonds Fall on Inflation Worries; Dollar Up: Markets Wrap
- Monetary tightening, China Covid curbs hinder global outlook
- Asian shares retreat but avoid scale of Wall Street declines
Stocks slid with bonds Friday and the dollar rose as inflation, rising borrowing costs and China’s Covid lockdowns depressed sentiment.
An Asia-Pacific share index shed over 1.5%, sapped by the technology sector amid drops in Hong Kong and China. The overall regional loss was smaller than Thursday’s slide of more than 3.5% in the S&P 500 index and 5% in the Nasdaq 100 gauge. U.S. and European futures dipped.
Australian debt and Treasuries extended a tumble that’s lifted the U.S. 10-year yield past 3%. A dollar gauge neared a two-year high and the yuan retreated.
Risk aversion has swept away a relief rally in the wake of the Federal Reserve decision Wednesday. The U.S. central bank raised interest rates by the most since 2000 while pushing back against talk of super-sized increases.
That led to temporary respite in markets as traders pared the most aggressive rate-hike bets but sentiment quickly skidded again on the cold reality of tightening financial conditions. The war in Ukraine and China’s Covid outbreak are also stirring angst and stoking concerns about the risk of a recession.
“Valuations become even more sensitive, very sensitive, when rates are going up and that is what we are experiencing,” Kristina Hooper, chief global market strategist at Invesco, said on Bloomberg Television. “It’s just getting exacerbated as we get into the thick of monetary-policy tightening in the U.S.”
Elevated commodity prices are feeding into rising costs. West Texas Intermediate crude has topped $108 a barrel on supply concerns stemming from a European Union proposal to sanction Russian oil.
Meanwhile, China reaffirmed its preference for a strategy of lockdowns to eliminate Covid despite the economic cost. Top leaders warned against questioning President Xi Jinping’s so-called Covid Zero strategy.
Separately, the nation ordered central government agencies and state-backed corporations to replace foreign-branded personal computers with domestic alternatives within two years.
Later Friday, the U.S. jobs report may show that rising wage costs are adding to the inflationary pressures that have been undermining market sentiment.