Stocks Set to Drop; Treasuries Rallied After CPI: Markets Wrap

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Asian stocks look set to fall Wednesday after Wall Street dipped amid growth concerns, while Treasuries rallied on inflation data that signaled flexibility for the Federal Reserve over when to start tapering stimulus.

Futures slid in Japan, Australia and Hong Kong, while U.S. contracts rose. The S&P 500 and Nasdaq 100 both retreated overnight. The benchmark 10-year Treasury yield fell below 1.3%, narrowing the yield gap between short- and longer-maturity U.S. debt. The dollar was steady and gold held a climb.

U.S. inflation was less than forecast in August, supporting the view that pandemic-related price pressures could be transitory but leaving the overall argument undecided. A gauge of commodity prices remains around a decade-high, underscoring the rise in costs filtering across the global economy.

In China, investors are awaiting economic data that are likely to show the damage done from a Covid-19 outbreak. Traders are also monitoring Beijing’s regulatory curbs and the debt woes of developer China Evergrande Group.

Flatter yield curve, pull back in stocks from record show restrained sentiment

While the inflation print could be seen as easing pressure on the Fed to start pulling back on loose monetary policy, investors remain concerned about the impact of the delta virus variant on economic reopening. Fund managers are souring on global growth and earnings but won’t give up on stocks, the latest Bank of America survey showed.

“It is hard to argue at this point that it remains entirely transitory,” Dana D’Auria, Envestnet Inc. co-chief investment officer, said on Bloomberg Television, referring to U.S inflation. “You couple that with that fact that there are still all these supply shocks that we are still working through. I think the markets are going to have to feel the pain.”

Going into the year-end, investors will also have to digest debate around the U.S. debt ceiling, President Joe Biden’s tax package, infrastructure spending and Fed tapering, she added.

Elsewhere, oil gained after a U.S. industry report showed a decline in inventories of crude and gasoline, signaling a tightening market.

Here are some events to watch this week:

  • China retail sales, property prices, industrial production, Wednesday
  • Quadruple witching day for U.S. markets, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures rose 0.1% as of 8:43 a.m. in Tokyo. The S&P 500 fell 0.6%
  • Nasdaq 100 futures added 0.1%. The Nasdaq 100 fell 0.3%
  • Nikkei 225 futures fell 0.8%
  • Australia’s S&P/ASX 200 Index futures dropped 0.5%
  • Hang Seng Index futures lost 0.5% earlier

Currencies

  • The Japanese yen traded at 109.73 per dollar
  • The offshore yuan was at 6.4377 per dollar
  • The Bloomberg Dollar Spot Index was little changed
  • The euro was little changed at $1.1801

Bonds

  • The yield on 10-year Treasuries declined four basis points to 1.28%
  • Australia’s 10-year bond yield fell five basis points to 1.20%

Commodities

  • West Texas Intermediate crude was at $70.75 a barrel, up 0.4%
  • Gold was at $1,804.35 an ounce
Source Bloomberg

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