Stocks, U.S. Futures Dip on Inflation, China Risks: Markets Wrap

(Bloomberg) — Stocks and U.S. equity futures fell Tuesday, hurt by concerns about elevated inflation stoked by energy costs and the possibility of a widening regulatory crackdown in China. Treasury yields were steady.

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MSCI Inc.’s Asia-Pacific index snapped a three-day climb, with the technology sector leading losses and South Korea underperforming. Signs that Beijing is widening its scrutiny of private and state enterprises soured the broader mood. U.S. and European futures retreated following declines on Wall Street as the prospect of a slowing recovery from the pandemic shadowed trading.

Oil held above $80 a barrel amid a power crisis from Europe to Asia. China’s thermal coal futures surged to a record for a second day. The energy crunch is squeezing supplies of aluminum, whose price hit a 13-year high. Other industrial metals have also rallied, fueling inflationary pressures.

The 10-year U.S. 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 trimmed 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.

In South Korea, the won dropped below the psychological barrier of 1,200 per dollar as the central bank held off from a second-straight rate hike. Thailand’s move to boost tourism by gradually scrapping mandatory quarantine for vaccinated visitors saw the baht climb the most since August.

Elsewhere, a rally in Bitcoin paused at about the $57,000 level.

Here are a few events to watch this week:

  • 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 6:09 a.m. in London. The S&P 500 fell 0.7%

  • Nasdaq 100 futures fell 0.3%. The Nasdaq 100 lost 0.7%

  • Japan’s Topix index lost 0.6%

  • South Korea’s Kospi declined 1.2%

  • Australia’s S&P/ASX 200 Index fell 0.4%

  • Hong Kong’s Hang Seng Index shed 0.9%

  • China’s Shanghai Composite Index fell 1.1%

  • Euro Stoxx 50 futures were down 0.7%

Currencies

  • The Japanese yen was at 113.28 per dollar

  • The offshore yuan was at 6.4541 per dollar

  • The Bloomberg Dollar Spot Index fell 0.1%

  • The euro was at $1.1561

Bonds

  • The yield on 10-year U.S. Treasuries was at 1.61%

  • Australia’s 10-year bond yield was at 1.73%

Commodities

  • West Texas Intermediate crude was at $80.63 a barrel, up 0.1%

  • Gold was at $1,759.79 an ounce, up 0.3%

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