A technology-led selloff that started on Wall Street reverberated across the world as worries over inflation pushed investors to dump expensive stocks. Treasuries were steady while the dollar erased its gains.
The benchmark for European stocks tumbled the most since January, after the Asian gauge posted the biggest losses since March. The tech-heavy Nasdaq 100 Index futures extended a slump that sent the underlying gauge down 2.6% on Monday. S&P 500 contracts fell in sympathy after the index retreated from an all-time high.
Debate rages over whether the expected jump in price pressures will be enduring enough to force the Federal Reserve into tightening policy sooner than current guidance suggests. A measure of U.S. inflation expectations reached the highest level since 2006.
“There is a risk the discussion could trigger market volatility,” according to BlackRock Investment Institute strategists led by Jean Boivin. “We believe investors should look through any such bouts of volatility. The Fed will likely be much slower than in the past to raise rates in the face of rising inflation.”
Among the biggest pandemic winners, tech stocks whose valuations often depend on earnings prospects far into the future are now at the center of the inflation-fueled selloff. Even after the declines, the Nasdaq trades at 26 times the 12-month projected profits, while the gauge of European technology shares enjoys a valuation of 29 times.
Wednesday’s U.S. inflation report along with a series of U.S. government bond auctions this week are seen as the next factors to deepen or arrest the slide. The CPI data are forecast to show a strong gain in April, though the year-on-year reading will be amplified by the pandemic shock in 2020.
Copper prices traded near a record, while iron also rallied. Oil dipped as traders monitored progress on reopening the largest U.S. oil-products pipeline, which was paralyzed by a cyberattack, and is expected to be mostly back online by the weekend.
See here the MLIV Question of the Day: How Far Can Reflation Trades Go?
Here are some key events to watch this week:
- A range of Fed speakers are due this week, including Governor Lael Brainard on Tuesday
- OPEC monthly Oil Market Report is published with global demand forecasts and production estimates Tuesday
- U.S. CPI report Wednesday is forecast to show prices continued to increase in April
- Bank of England Governor Andrew Bailey speaks Wednesday
These are some of the main moves in markets:
Stocks
- Futures on the S&P 500 Index decreased 0.7% as of 9:55 a.m. London time.
- The Stoxx Europe 600 Index sank 2%.
- The MSCI Asia Pacific Index sank 1.9%.
- The MSCI Emerging Market Index sank 1.4%.
Currencies
- The Bloomberg Dollar Spot Index was little changed.
- The euro jumped 0.3% to $1.2162.
- The British pound rose 0.1% to $1.4133.
- The onshore yuan weakened 0.1% to 6.421 per dollar.
- The Japanese yen was little changed at 108.84 per dollar.
Bonds
- The yield on 10-year Treasuries gained one basis point to 1.61%.
- The yield on two-year Treasuries climbed less than one basis point to 0.15%.
- Germany’s 10-year yield rose four basis points to -0.18%.
- Japan’s 10-year yield sank one basis point to 0.078%.
- Britain’s 10-year yield gained four basis points to 0.824%.
Commodities
- West Texas Intermediate crude declined 0.7% to $64.46 a barrel.
- Brent crude dipped 0.7% to $67.85 a barrel.
- Gold was little changed at $1,836.10 an ounce.
— With assistance by Ksenia Galouchko, Emily Barrett, and Andreea Papuc