Global stock bounce pauses on worry over Fed hikes: markets wrap

A bounce in stocks paused and US equity futures wavered Monday, hampered by expectations of aggressive interest-rate hikes by the Federal Reserve to tackle the highest inflation in a generation.

Retreating tech shares were among the drags on MSCI Inc.’s Asia-Pacific stock index. Covid lockdowns in a Chinese resort island also hit sentiment, while Hong Kong’s move to cut mandatory quarantine failed to ignite much optimism.

S&P 500 and Nasdaq 100 contracts fluctuated after global shares completed a third straight advance last week in a rebound from bear-market lows. European futures painted a more upbeat picture, hinting at modest gains.

Strong US jobs data Friday added to the case for more Fed monetary tightening. That’s pushed up Treasury yields and the dollar. A key part of the US bond curve is close to the most inverted level since 2000, suggesting investors foresee a recession ahead as the Fed applies the brakes on the economy.

Crude oil remained below $90 a barrel, restrained by worries about the demand outlook. Both gold and Bitcoin struggled to make much progress.

Traders now see greater odds of another 75 basis-point Fed hike in September, part of a global wave of rate increases. US inflation data this week could shape views on that policy path and inject more market swings. While price pressures may be topping out, it’s unclear if they will persist a stubbornly high levels.

If investor projections for a peak in the fed funds rate top 4% following the inflation data, we could see “risk rolling over, with volatility rising, defensives outperforming, and better shorting opportunities” kicking in, Chris Weston, Pepperstone Group Ltd. head of research, wrote in a note.

The latest comments from Fed officials left a question mark over wagers on a policy pivot toward reducing borrowing costs next year.

‘Far from done’

San Francisco Fed President Mary Daly said the US central bank is “far from done yet” in bringing down price pressures. Governor Michelle Bowman said the Fed should keep considering large hikes similar to the 75 basis-point increase approved last month until inflation meaningfully declines.

The July US payrolls report is “likely to enhance the Fed’s inclination to front-load interest rate hikes until the policy rate overshoots neutral by a good margin over the next few months,” TD Securities strategists including Priya Misra wrote in a note.

Elsewhere, the US Senate passed a landmark tax, climate and health-care bill, speeding a slimmed-down version of President Joe Biden’s domestic agenda on a path to becoming law.

Incoming reports showed China’s trade surplus rose to a record. The nation’s economic rebound faces potential global headwinds as well as domestic Covid flareups and property-sector woes.

What to watch this week:

• Iran nuclear deal talks, Monday
• US CPI data, Wednesday
• China CPI, PPI Wednesday
• Chicago Fed President Charles Evans, Minneapolis Fed President Neel Kashkari due to speak, Wednesday
• US PPI, initial jobless claims, Thursday
• San Francisco Fed President Mary Daly is interviewed on Bloomberg Television, Thursday
• Euro-area industrial production, Friday
• US University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.1% as of 12:38 p.m. in Tokyo. The S&P 500 fell 0.2%
• Nasdaq 100 futures fell 0.1%. The Nasdaq 100 fell 0.8%
• Japan’s Topix index climbed 0.1%
• Australia’s S&P/ASX 200 Index was little changed
• South Korea’s Kospi index fell 0.1%
• Hong Kong’s Hang Seng Index shed 0.8%
• China’s Shanghai Composite Index added 0.2%
• Euro Stoxx 50 futures increased 0.5%

Currencies

• The Bloomberg Dollar Spot Index was steady
• The euro was at $1.0183
• The Japanese yen was at 135.13 per dollar, down 0.1%
• The offshore yuan was at 6.7691 per dollar, down 0.1%

Bonds

• The yield on 10-year Treasuries fell one basis point to 2.82%
• Australia’s 10-year yield rose 12 basis points to 3.20%

Commodities

• West Texas Intermediate crude rose 0.2% to $89.20 a barrel
• Gold was at $1 773.03 an ounce, down 0.1%