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Futures, Stocks Drop as Yields Climb; Dollar Gains: Markets Wrap

European stocks followed U.S. futures and Asian peers lower Tuesday as investors fretting that surging borrowing costs will dent growth dumped risk assets. The dollar advanced and the yen sank to a 20-year low. 

The Stoxx Europe 600 Index slid 0.5% at the open, dragged down by technology and travel and leisure sectors. In the UK, the export-heavy FTSE 100 was little changed as the pound slid on concerns about the nation’s growth and risks to Boris Johnson’s leadership. 

A dollar gauge rose to the highest in more than two weeks. US bond yields topped 3% for the first time since early May, adding pressure to the Treasury market before it digests new supply and crucial inflation data at the end of the week.

Investors are reluctant to take on risk and volatility remains elevated. Equities are struggling to mount a sustainable rebound amid fears policy makers need to be even more aggressive in their withdrawal of stimulus to rein in inflation, hurting the economy and corporate earnings.

“We are going to continue to bounce back and forth through the summer,” Julie Biel, portfolio manager and senior research analyst at Kayne Anderson Rudnick, said on Bloomberg Radio. “Overall, people are trying to find some sense of direction, just how we are going to land this economy without a recession, this so-called soft landing.”

Elsewhere, MSCI Inc.’s gauge of Asia-Pacific shares fell the most in more than a week. Equities in Japan gained as a falling yen boosted exporters.

Australia’s three-year yields soared and stocks fell as the Reserve Bank of Australia blindsided the market with the outsized hike to combat rising costs. The RBA responded to price pressures with its biggest rate increase in 22 years — predicted by just three of 29 economists — and indicated it remained committed to “doing what is necessary” to rein in inflationary pressures. 

On Thursday, the European Central Bank is set to announce an end to bond purchases this week and formally begin the countdown to an increase in borrowing costs in July, joining global peers tightening monetary policy in the face of hot inflation.

Which commodities will outperform into year-end? Raw materials is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.

Key events to watch this week:

  • World Bank’s “Global Economic Prospects” report Tuesday
  • Reserve Bank of India rate decision Wednesday
  • OECD Economic Outlook, a twice-yearly analysis of major global economic trends and prospects for the next two years. Wednesday
  • European Central Bank rate decision, Christine Lagarde briefing, Thursday
  • China trade, new yuan loans, money supply, aggregate financing. Thursday
  • US CPI, University of Michigan consumer sentiment Friday
  • China CPI, PPI Friday

Source By: Bloomberg