Stocks, Futures Fall as Treasury Yields Surge: Markets Wrap

(Bloomberg) — Stocks fell Tuesday amid a jump in global bond yields as investors girded for the removal of central bank support to quell high inflation.

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Europe’s Stoxx 600 Index declined, with all sectors in the red. Technology shares led the retreat as and Nasdaq 100 futures deepened losses to 2% before the market reopens later from a holiday. Asian shares struggled.

Treasuries dropped across the curve, pushing two-year and 10-year yields up to levels last seen before the pandemic roiled markets. Even German debt — famed for ultra-low rates — suffered from the prospect of tighter policy, with benchmark yields on the verge of a positive reading for the first time since early 2019.

Pressure is growing for central banks to act more quickly to contain price pressures, which are being stoked in part by the rally in oil that’s taken Brent crude to the highest in seven years. Easing concerns about the impact of the omicron virus strain on demand, together with shrinking oil inventories are contributing to forecasts of $100 per barrel crude later this year.

Higher interest rates mean a bigger discount for the present value of future profits, hurting growth stocks with the highest valuations, such as technology, and boosting cheap or so-called value shares.

Market participants are now waiting for the earnings season to gauge whether companies can continue delivering robust profits despite higher costs and challenges from omicron. JPMorgan Chase & Co. strategists contend that global corporate earnings will deliver significant beats this year.

“With rates biased higher over the coming months, investors should be prepared for parts of the tech sector to again be challenged,” Seema Shah, chief strategist at Principal Global Investors, wrote in a note to investors. “Although rising bond yields are challenging the entire tech sector, investors must distinguish between profitless names that are a long way from demonstrating healthy earning power and mega-cap tech firms that can defend their margins.”

Story continues

A gauge of the dollar rose. The yen initially declined after the Bank of Japan sat pat on policy while nudging up its inflation projection.

For more market analysis, read our MLIV blog.

What to watch this week:

  • Goldman Sachs, Morgan Stanley, Bank of America, UnitedHealth Group and Netflix are among companies publishing earnings during the week

  • U.S. data includes Empire manufacturing Tuesday, housing starts Wednesday and jobless claims Thursday

  • Interest-rate decisions due from nations including Indonesia, Malaysia, Norway, Turkey and Ukraine, Thursday

  • EIA crude oil inventory report, Thursday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 fell 1.3% as of 9:35 a.m. London time

  • Futures on the S&P 500 fell 1.3%

  • Futures on the Nasdaq 100 fell 2%

  • Futures on the Dow Jones Industrial Average fell 0.8%

  • The MSCI Asia Pacific Index fell 0.2%

  • The MSCI Emerging Markets Index fell 0.2%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.1%

  • The euro fell 0.1% to $1.1394

  • The Japanese yen was little changed at 114.62 per dollar

  • The offshore yuan fell 0.1% to 6.3584 per dollar

  • The British pound fell 0.1% to $1.3631

Bonds

  • The yield on 10-year Treasuries advanced five basis points to 1.83%

  • Germany’s 10-year yield advanced two basis points to -0.01%

  • Britain’s 10-year yield advanced two basis points to 1.21%

Commodities

  • Brent crude rose 1.2% to $87.48 a barrel

  • Spot gold fell 0.4% to $1,811.43 an ounce

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