US futures fall on the impact of inflation; Increases pressure on the Federal Reserve

Bloomberg – US stock futures fell early on Monday after sudden US inflation increased pressure on the Federal Reserve to ramp up monetary tightening.

Nasdaq 100 contracts fell more than 1%, while the S&P 500 contracts fell somewhat less, after heavy losses on Wall Street that contributed to the worst drop in global stocks last week since October 2020. Asian futures suggest declines await Japanese and Hong Kong stocks.

New Zealand’s 10-year bond yield exceeded 4% for the first time since 2014, following a pullback in Treasuries that left US 2-year yields at 14-year highs. 30-year Treasury yields are lower than 5-year Treasury yields, He cited fears that sharp interest rate increases by the Federal Reserve could lead to a hard economic downturn.

The dollar was held steady by safe-haven demand amid a toxic combination of rising costs and slowing growth. Weak risk-sensitive currencies such as the Australian dollar. Oil, one of the raw materials that contributed the most to the price hike, fell below $120 a barrel.

Markets are also grappling with the Covid outbreak in China, with Beijing and Shanghai resuming mass testing for the virus. It is feared that China’s Covid-Zero strategy will lead to repeated shutdowns that will damage both its economy and global supply chains. The latter is also affected by the war in Ukraine.

“At some point financial conditions will tighten enough and/or growth will weaken enough that the Federal Reserve can pause its rally,” said Goldman Sachs Group Inc., strategists. , including Finding Zach Pandl. “But it still appears that we are a long way from that point, which indicates upside risks to bond yields, continued pressure on risk assets, and there is likely to be broad strength in the US dollar for the time being.”

The US Consumer Price Index rose 8.6% in May from a year earlier – a new 40-year high – in a broad-based advance, adding to a worrisome string of global inflation data. Many investors expect the Fed to raise rates by half a point this week and again in July and September. Barclays plc and Jefferies LLC said a larger move of 75 basis points is possible at the June meeting.

It’s not a bed of roses

Sonal Desai, chief investment officer for fixed income at Franklin Templeton, said on Bloomberg TV that Treasury volatility “cannot be something that any central bank would welcome.” “We will see more of the same. It will not be a nice smooth climb. The Fed will have to do more.”

The yen fell and is still within sight of a 24-year low against the dollar, due to the stark contrast in policy between the hawkish Federal Reserve and the still dovish Bank of Japan. Top Japanese officials issued a warning about the yen on Friday, trying to maintain a low under the currency.

The lack of confidence over the weekend showed in the cryptocurrency’s plunge that took Bitcoin to as low as $26,877, its weakest since mid-May.

In Australia, the financial markets are closed for holidays.