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Europe faces more steep losses Monday on heightened inflation fears. In Asia, stocks were deep in the red; the dollar, Treasury yields and oil were higher; and gold lost ground.
After a volatile week, Europe is braced for more losses, with major stock-index futures sharply lower early Monday.
Stocks slumped to end the week after Jerome Powell said the Federal Reserve wasn't considering a 75-basis-point rate hike, leading some to question whether the central bank was doing enough to control inflation.
All three major U.S. stock benchmarks closed lower Friday, each booking another week of losses, as investors weighed April jobs data amid heightened stagflation fears.
"It's been a confusing and erratic market, to say the least," said Keith Lerner, co-chief investment officer at Truist Advisory Services. "We have somewhat of a fickle market right now."
Friday's U.S. employment report should "ease some concerns" that a recession may be looming, according to Lerner, who said he is not expecting a recession in the next 12 months. Even if the economy is slowing, "at least we have some momentum," he said.
Delays at Shanghai's port due to Covid-19 lockdowns could keep container freight prices well above historic levels for 2022 and elevated well into 2023, said Rabobank's Australia-New Zealand research general manager Stefan Vogel.
"The already-stressed global container logistics situation is becoming more complicated due to massive delays around the Shanghai port."
The dry container index, which tracks average prices paid for the transport of dry bulk materials, increased five-fold through 2021. While the index has declined from its September 2021 high and is down 16% since early March, it looks likely that the lockdowns in China will add to continued container logistics issues, Vogel said.
The USD Index gained around 0.3% in Asia, pushing above 104.00, in a risk-off Asian session.
Sentiment was driven by the G7's pledge to phase out Russian energy imports and concerns over slowing global economic growth as China tightened Covid-19-related restrictions. MUFG Bank said risk aversion is likely to be the main play for Monday and is expected to keep the USD Index supported.
Read: Dollar Strength Bucks Inflation Woes
The Russian ruble has staged a remarkable rally recently and may now be a "bit too strong," said Capital Economics economist Liam Peach.
"With [Russia's] exports facing headwinds and imports likely to bottom out soon, we think the ruble will depreciate later in the year."
The EU's proposed ban on Russian oil imports by year-end has met resistance from Central and Eastern European countries, Peach said. However, even if it takes time for EU members in CEE to move away from Russian oil, Russia's oil exports will fall sharply and the impact of this will be felt more acutely in 2023.
Treasury yields continued to move higher Monday, pushing 5- to 30-year rates further above 3%. The 10-year note yield traded at a nearly 3 1/2-year high as the inflation outlook remained in focus following the April jobs data.
Inflation data rather than Fed words will drive markets for now, said Piper Sandler.
"If the next couple of CPI and PCE reports support the idea [that] inflation will moderate, expectations for future rate hikes will diminish, term premiums will decline, rates will moderate, stock prices should recover, and overall volatility should subside. If not, the current environment is likely to persist." Piper Sandler believes that "market volatility won't subside, until inflation expectations turn around."
U.S. inflation data is due Wednesday.
Oil bounced back from opening losses in Asia, supported by hopes that China was potentially loosening some of its harsh lockdown conditions in the form of pilot projects in some cities, said SPI Asset Management managing partner Stephen Innes.
That said, "the [Chinese] government is said not to be ready just yet," Innes said, adding that global recession risks were still weighing on sentiment and could limit any oil-price gains.
Japan said Monday it would phase out and eventually ban the import of Russian oil, reversing its earlier stance after the G7 meeting.
"Japan relies on imports for most of its energy resources, so this is a very difficult decision, but right now the unity of the G7 is more important than anything else," said Prime Minister Fumio Kishida. "We have decided to take the step of banning imports of Russian oil in principle."
Saudi Aramco lowered June OSPs for its flagship Arab Light grade for Asian customers to $4.40/bbl above the Oman-Dubai benchmark, compared with the $9.35/bbl premium for May, a sign from the world's largest oil producer that demand could be weakening as lockdowns in China curb mobility and industrial activity.
Gold futures fell in Asia with the Fed's path for monetary tightening still in focus.
DailyFX strategist David Song said expectations of an easing in U.S. inflation this week [April's CPI increase is likely 8.1% versus 8.5% for March] could also dampen the appeal of gold. That said, "the precious metal may stage a larger recovery over the coming days as the FOMC appears to be in no rush to wind down the balance sheet to pre-pandemic levels."
Base metals were broadly lower as Covid-19 related lockdowns in China, as well as poor macroeconomic indicators from major economies, added to demand concerns, said ING commodities strategists Warren Patterson and Wenyu Yao.
Copper led declines, with its three-month LME contract down 0.6%. Money managers were shifting their position on Comex copper, the strategists said, adding that they were net short for the first time in two years.
Chinese commodity demand should improve in the second half of 2022, underpinned by a pickup in Chinese infrastructure construction activity and pent-up demand as Covid lockdowns ease, according to UBS analyst Lachlan Shaw.
He expects copper and aluminum to be particular beneficiaries from an infrastructure campaign that is geared toward spending on grid development and renewable energy and should support demand through 2023.
"But, in our view, it is not clear that this will drive a powerful recovery in global commodity demand, with China property expected to remain weak [albeit not as bad as 1H22], downside risks to demand in Europe [recession?] and U.S. [Fed tightening headwinds] that will have a knock-on impact on Chinese export demand," Shaw said.
Crypto Prices Slump Over the Weekend
The cryptocurrency market fell over the weekend, mirroring the slide of the broader stock market.
The world's largest cryptocurrency, bitcoin, fell to $34,656 on Sunday afternoon, a 3.9% drop from Friday evening, according to prices from CoinDesk. Earlier in the afternoon, bitcoin slid below $34,000 to about half of its all-time-high of $67,802 in November.
Japan Plans to Ban the Import of Russian Oil
TOKYO--Japan said Monday it would phase out and eventually ban the import of Russian oil, reversing its earlier stance after a meeting of Group of Seven leaders.
"Japan relies on imports for most of its energy resources, so this is a very difficult decision, but right now the unity of the G7 is more important than anything else," said Prime Minister Fumio Kishida. "We have decided to take the step of banning imports of Russian oil in principle."
Dollar Strength Bucks Inflation Woes
Years ago, high U.S. inflation meant a weak dollar. So far, it is different this time, and many on Wall Street are betting it will stay that way.
The dollar is reaching multidecade highs against its trading partners, even with U.S. inflation at its highest level in nearly 40 years. The U.S. Dollar Index, which tracks the currency against a basket of others, is reaching highs unseen since 2002. The greenback's climb has sent the euro, British pound and Japanese yen tumbling.
The Tech Industry's Epic Two-Year Run Sputters
The technology industry, which powered the U.S. economy during the pandemic and grew at tremendous scale during a decade of ultralow interest rates, is confronting one of the most punishing stretches in years.
Global powerhouses and fledgling startups are feeling pain from a variety of economic, industry and market factors, spawning postpandemic turbulence in e-commerce, digital advertising, electric vehicles, ride-hailing and other segments.
Energy Stocks Still Have Gas in the Tank
Oil and natural gas are hot, and so are American energy stocks. But investors, whether they have been along for the ride or are just thinking of joining now, may be wary of getting burned.
January through March of this year was the best quarter for the sector since 1970, according to BofA Global Research. While the S&P 500 is down roughly 13% year to date, the energy sector is up 49%. That follows a year when energy stocks beat the broader index by 21 percentage points.
Market's 2022 Slide Has Already Changed Investor Behavior
The 2022 pullback in U.S. stocks intensified last week, with stocks on Thursday staging their largest single-day decline since the onset of the pandemic. The plunge came just a day after Federal Reserve Chairman Jerome Powell appeared to clear the way for a stock rally by casting interest-rate increases larger than a half-percentage point as unlikely.
Pentagon's China Warning Prompts Calls to Vet U.S. Funding of Startups
WASHINGTON, D.C.-Congress may soon require government agencies to vet tech startups seeking federal funding, after a Defense Department study found China is exploiting a popular program that funds innovation among small American companies.
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