Stocks, Bonds Dip as Traders Mull Inflation, China: Markets Wrap

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(Bloomberg) — Most Asian stocks dipped Tuesday on concerns about elevated inflation stoked by energy costs and the possibility of a widening Chinese crackdown on private industry. Treasury yields were steady.

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Shares fell in Japan and South Korea, but edged up in Australia. U.S. futures retreated after the S&P 500 and Nasdaq 100 declined for a second day as the prospect of a slowing recovery from the pandemic shadowed trading. A report suggesting China is widening scrutiny of private industry by examining ties to state banks also soured the mood.

Oil trimmed gains spurred by a power crisis from Europe to Asia. The energy crunch is squeezing supplies of aluminum, whose price hit a 13-year high. Other industrial metals rallied, flagging inflationary pressures in the global economy.

The U.S. 10-year Treasury yield was little changed as the cash market reopened from a holiday. Aside from inflation, investors also face a looming reduction in Federal Reserve bond purchases. The dollar held an advance.

Global markets are struggling to shake off worries that inflation spurred by an energy crunch and pandemic-related supply-chain snarls will sap company profits and economic expansion. Financial firms this week will kick off the third-quarter earnings season, heralding a key test of investor confidence.

“We expect third-quarter earnings to be very, very strong,” Rebecca Felton, senior market strategist at RiverFront Investment Group, said on Bloomberg Television. “But it’s that forward look into the fourth quarter and 2022 that has everyone on edge.”

Traders are also awaiting reports on the U.S. consumer-price index and retail sales. The figures will help inform expectations about the likely timeline for Fed tapering and any eventual rate hikes.

“Upcoming data releases could spur added stagflation concerns,” Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered Plc, wrote in a note. “In particular, September CPI inflation could be higher than expected and retail sales lower.”

The debt crisis at China Evergrande Group continues to simmer. Some holders of two Evergrande U.S. dollar bonds with coupons due Monday said they had yet to receive payment, the latest sign of the property developer’s woes.

Elsewhere, Bitcoin held at about $57,000 in a rally that’s led to speculation about a possible run-up to the largest cryptocurrency’s mid-April record high.

Here are a few events to watch this week:

  • Bank of Korea policy decision and briefing Tuesday

  • Atlanta Fed President Raphael Bostic speaks on inflation Tuesday

  • U.S. FOMC minutes and CPI Wednesday

  • China PPI, CPI Thursday

  • U.S. initial jobless claims, PPI Thursday

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.3% as of 9:25 a.m. in Tokyo. The S&P 500 fell 0.7%

  • Nasdaq 100 futures fell 0.4%. The Nasdaq 100 lost 0.7%

  • Japan’s Topix index lost 0.5%

  • South Korea’s Kospi declined 1.2%

  • Australia’s S&P/ASX 200 Index added 0.1%

  • Hang Seng Index futures dropped 0.9% earlier

Currencies

  • The Japanese yen was at 113.48 per dollar, down 0.1%

  • The offshore yuan was at 6.4587 per dollar

  • The Bloomberg Dollar Spot Index was steady

  • The euro was at $1.1549

Bonds

Commodities

  • West Texas Intermediate crude was at $80.23 a barrel, down 0.4%

  • Gold was at $1,751.82 an ounce, declining 0.1%

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