Stocks Slip as Yields Rise, China Optimism Fades: Markets Wrap

(Bloomberg) — Early optimism on moves by China to further ease Covid restrictions faded, as the path of American rate policy stifled potential gains in European equities and US futures.

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The Stoxx Europe 600 Index ticked lower while contracts on the S&P 500 retreated 0.3%. Treasury yields climbed, helping to pare the dollar’s losses.

A hotter-than-expected US jobs report last week along with a jump in average hourly earnings point to fresh inflation risks unsettling traders.

At the same time, dovish Fedspeak has tempered the move in yields. Friday’s payrolls data boosted wagers on where US rates will top out in the current tightening cycle without undoing bets on the size of next week’s rate hike, which still calls for 50 basis points of tightening.

“We still think Treasuries have no business in trading in the 3.5% area if the Fed is about to hike rates to almost 5%,” ING Groep NV strategists including Antoine Bouvet wrote in a note.

Asian equities rose after Chinese authorities eased Covid testing requirements across major cities over the weekend as Beijing appears to be engineering a gradual shift away from its strict Covid Zero policy amid elevated cases and public protests.

Commodities also advanced on the prospect of more demand from China. Oil, iron ore and copper climbed.

“The damage being done to the Chinese economy in general, the longer the aforementioned Covid restrictions stay in place, is clear to see,” Simon Ballard, chief economist at First Abu Dhabi Bank, wrote in a note to clients. “China now desperately needs policies to bolster the labour market and help to underpin domestic demand.”

Key events this week:

S&P Global PMI for the Euro zone, Monday
US factory orders, durable goods orders, ISM services index, Monday
ECB President Christine Lagarde speaks, Monday
Australia interest rate decision, Tuesday
US trade, Tuesday
EIA crude oil inventory report, Wednesday
Euro zone GDP, Wednesday
US MBA mortgage applications, Wednesday
ECB President Christine Lagarde speaks, Thursday
US initial jobless claims, Thursday
China PPI, aggregate financing, money supply, new yuan loans, Friday
US PPI, wholesale inventories, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

The Stoxx Europe 600 was little changed as of 8:41 a.m. London time
Futures on the S&P 500 fell 0.3%
Futures on the Nasdaq 100 fell 0.3%
Futures on the Dow Jones Industrial Average fell 0.3%
The MSCI Asia Pacific Index rose 1.1%
The MSCI Emerging Markets Index rose 1.4%

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro rose 0.1% to $1.0547
The Japanese yen fell 0.7% to 135.19 per dollar
The offshore yuan rose 1% to 6.9518 per dollar
The British pound was little changed at $1.2272

Cryptocurrencies

Bitcoin rose 1.5% to $17,363.15
Ether rose 2% to $1,301.85

Bonds

The yield on 10-year Treasuries advanced five basis points to 3.53%
Germany’s 10-year yield advanced one basis point to 1.87%
Britain’s 10-year yield declined one basis point to 3.14%

Commodities

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Tassia Sipahutar and Michael Msika.