U.S. Futures Rise, Bonds Fall; Hong Kong Saps Asia: Markets Wrap

(Bloomberg) — U.S. equity futures climbed Monday, while Treasures fell, as traders weighed inflation risks from commodity-supply disruptions and braced for the Federal Reserve to begin hiking interest rates this week.

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S&P 500, Nasdaq 100 and European contracts pushed higher, signaling some respite from selloffs spurred by Russia’s invasion of Ukraine. Investors were parsing efforts at diplomacy to tackle the conflict, as well as comments from a U.S. official that Russia asked China for military equipment.

In Asia, Chinese tech shares plunged, hurt by concerns about a regulatory squeeze at home as well as fears that firms may have to delist from the U.S. Surging Covid cases in China are also dimming the economic outlook and weighing on the nation’s shares more broadly. A weaker-than-expected reference rate for the yuan may stir expectations of more policy easing.

The dollar was steady and the yen slipped, bolstering Japan’s bourse. The ruble was indicated slightly stronger versus the greenback. Gold retreated further from $2,000 an ounce.

Treasuries extended a rout, taking the five-year U.S. yield above 2% for the first time since May 2019. The Fed on Wednesday is expected to begin a cycle of rate increases to tame inflation, starting with a 25 basis-points move.

Price pressures were already high before the war in Ukraine, and the isolation of resource-rich Russia, stoked commodity costs. Crude shed about 3% while remaining above $105 a barrel.

The flattening U.S. Treasury yield curve, and a 12% drop in global stocks this year, signal worries that receding stimulus and elevated energy, grain and metal costs may choke the world economic recovery. Investors are also waiting to see if Russia defaults on its international debt after losing access to almost half of its foreign exchange reserves.

“We are experiencing extraordinary volatility in global equities compounded by wavering market sentiment, and the risk of recession intensifies on spiraling commodity prices,” Louise Dudley, portfolio manager for global equities at Federated Hermes, wrote in a note. “We expect ongoing swings in the short term as geopolitical uncertainty over Russian crude persists.”

The Fed is the drawcard among eight Group of 20 members whose monetary officials are due this week to assess economic prospects.

‘Stuck’ Fed

The Fed “are really stuck between the real economy and the financial economy,” Karen Harris, Bain & Co. global head of macro research, said on Bloomberg Television. “You have mainstream struggling with inflation — that’s why we are set to see these rises coming in March. On the other side we are trying not to prick the financial economy. Either path is deflationary, recessionary.”

Meanwhile, senior U.S. and China officials are set to meet Monday to discuss Ukraine. Russian missiles hit a military training facility in western Ukraine close to Poland, raising new concerns about the conflict potentially spilling over Ukraine’s borders.

In cryptocurrencies, Bitcoin fell and was trading around $38,000.

Here are some key events to watch this week:

China one-year medium-term lending facility rate, economic activity data, Tuesday
EIA crude oil inventory report, Wednesday
FOMC rate decision and Fed Chair Jerome Powell news conference, Wednesday
Bank of England rate decision, Thursday
ECB President Christine Lagarde, Executive Board member Isabel Schnabel, Governing Council member Ignazio Visco and Chief Economist Philip Lane speak at a conference, Thursday
Bank of Japan rate decision, Friday

For more markets news, follow our Markets Live blog.

Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.6% as of 10:53 a.m. in Tokyo. The S&P 500 fell 1.3% Friday
Nasdaq 100 contracts rose 0.5%. The Nasdaq 100 fell 2.1% Friday
Japan’s Topix index gained 1%
Australia’s S&P/ASX 200 Index rose 1.2%
South Korea’s Kospi index fell 0.7%
Hong Kong’s Hang Seng Index fell 2.1%
China’s Shanghai Composite Index lost 1%

Currencies

The Japanese yen traded at 117.73 per dollar, down 0.4%
The offshore yuan was at 6.3623 per dollar
The Bloomberg Dollar Spot Index rose 0.1%
The euro was at $1.0917

Bonds

Commodities

West Texas Intermediate crude fell 3.1% to $105.99 a barrel
Gold fell 0.7% to $1,974.08 an ounce