Equities and bonds fell on Monday on worries about monetary tightening and tightened inflation concerns.
Stocks in Mainland China and Hong Kong dipped sharply over 2.5% while equities in South Korea and Japan inched down moderately. The MSCI Asian Index ex Japan is moderately higher by 0.16%.
Chinese factory gate inflation increased more than expected in March as fresh COVID-19 outbreak continues to threaten economic outlook.
U.S. and Europe futures also dipped, pointing to more challenges for global shares after the Federal Reserve signaled sharp interest-rate hikes and balance-sheet reduction.
Benchmark bond yield of 10-year climbed to 2.72%, underscoring the highest since 2019. As real yield gets closer to turn positive – a development seen as risky for major asset classes.
Market sentiment continues to be shaped on Fed’s action and inflation sparked by commodity market disruption amid war in Ukraine. Additionally, China’s Covid lockdowns further threatens supply-chain, further stoking costs.
“Hawkish FOMC and ECB minutes pointing to a faster exit from stimulus have pushed global yields higher and widened country spreads,” Subadra Rajappa, head of U.S. rates strategy at Societe Generale, wrote in a client note.
“Nervousness around a tighter French presidential election outcome has also contributed to the move.”
Federal Reserve Bank of Cleveland 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.
Russia appointed a new commander for its operations in Ukraine. Moscow is refocusing its war effort in the east, having failed to secure territory around the capital, Kyiv.
Russia said it will halt bond auctions for the remainder of 2022 due to prohibitive borrowing costs. The country’s first external default in a century now looks all but inevitable after Russia was sanctioned and isolated over the conflict.
Crude oil retreated, sapped by risks to demand from China’s worsening Covid outbreak and an extensive lockdown in Shanghai. The WTI is trading around $95 a barrel while Brent is trading round $100 a barrel.
