Equities are stable and bond volatility is the order of the day: market envelope
(Bloomberg) – Shares are expected to start the week cautiously as investors brace for volatility in the Treasury market and assess the economic blow from the fast-spreading variant of Covid omicron.
The S&P 500 had the worst start to the year since 2016, as expectations of faster-than-expected U.S. interest rates hitting the bond markets upside down. The tech-rich Nasdaq 100 had its worst week since February amid a rotation of names of expensive and high-growth tech. Australian futures rose earlier, while Japan is closed for a public holiday on Monday.
Treasury yields climbed across the board last week in a massive selloff triggered by Federal Reserve minutes, signaling a willingness to start raising rates as early as March. The yield on the US 10-year note reached its highest level in nearly two years.
US inflation data this week will be watched closely as concerns grow. The Fed is behind schedule in tackling the high price pressures. U.S. employers added fewer staff than expected in December, but wages rose more than expected, bolstering the Fed’s case for tightening liquidity.
Markets face increasing volatility as investors wonder how to revalue assets as the pandemic liquidity that helped drive stocks to record highs is withdrawn. At the same time, the spread of omicron poses a new test for economic activity.
“The US Fed must be cautious in removing political accommodations – it shouldn’t happen too quickly, otherwise it risks disrupting the rebound in economic growth and could lead to another ‘tantrum’,” Diana Mousina , economic manager of multi-asset group at AMP Capital, said in a note. She sees more volatility this year due to inflation, Fed rate hikes and geopolitics as well as the midterm elections in the United States.
Chinese stocks will be in the spotlight. China’s Securities Regulatory Commission has said it will adopt various measures to avoid volatility and “firmly” prevent large swings after stocks had the worst start in a year since 2016.
Elsewhere, Bitcoin was trading around just over $ 42,000 as the cryptocurrency rout deepened.
For more market analysis, read our MLIV blog.
Some of the main movements in the markets:
- The S&P 500 fell 0.4%
- The Nasdaq 100 fell 1.1%
- Australian S & P / ASX 200 index futures were little changed
- Hang Seng index futures rose 0.4% earlier
- The Japanese yen was at 115.65 per dollar
- The offshore yuan was at 6.3869 per dollar
- Bloomberg Dollar Spot Index fell 0.5% on Friday
- The euro was at $ 1.1353
- The yield on 10-year Treasuries rose four basis points to 1.76% on Friday
- West Texas Intermediate crude fell 0.7% to $ 78.90 a barrel
- Gold rose 0.3% to $ 1,796.55 an ounce
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