Stocks and US equity futures declined Monday, while Treasury yields rose, as a jump in energy costs again highlighted the inflation concerns that are weighing on the global economy.
Japanese and Chinese shares slid along with S&P 500 and Nasdaq 100 contracts. Treasuries fell on the prospect of rapid Federal Reserve monetary tightening to curb price pressures, pushing the 10-year yield to about 2.85%.
The dollar and gold climbed amid a cautious mood. The yen steadied after Bank of Japan Governor Haruhiko Kuroda said its recent retreat was “very rapid.”
Natural gas and oil advanced, partly on risks from Russia’s war in Ukraine. These include the possibility of a de facto European Union embargo on Russian gas and the threat of some curbs on crude in Europe’s next sanctions package.
Chinese economic data were mixed — first-quarter gross domestic product growth topped estimates but March retail sales decreased more than expected. The latter hinted at ongoing damage from Covid lockdowns in the last few weeks. Officials cut the reserve requirement ratio Friday but refrained from lowering interest rates in a cautious approach to policy easing.
China’s Covid-linked restrictions are snarling supply chains and stoking global inflation pressures. The latter were already exacerbated by disruptions to commodity flows due to the war and Russia’s isolation. Concern is growing that the U.S. economy faces a downturn from the Fed’s pivot toward aggressive policy tightening to contain the cost of living.
“Major regime change is rarely smooth in either geopolitics or economics, and markets are under-pricing these risks,” Eric Robertsen, chief strategist at Standard Chartered Bank Plc, wrote in a note. “We are increasingly concerned about a summer of turbulence and volatility.”
History suggests the Fed will face a difficult task in tightening policy to cool inflation without causing a U.S. recession, according to Goldman Sachs Group Inc. It put the odds of a contraction at about 35% over the next two years.
In Shanghai, officials reported the first deaths from a surging Covid-19 outbreak. The city has also published plans to resume production after a prolonged lockdown, recommending businesses adopt so-called closed-loop management, where workers live on-site and are tested regularly.
Markets in Australia, Hong Kong and much of Europe remain shut for Easter.