Stocks Steady, U.S. Futures Dip; Bond Yields Jump: Markets Wrap

Market Trading EssentialsOctober 18, 2021

3 minutes read

(Bloomberg) — Most Asian stocks and U.S. futures slid Monday as surging energy prices cemented worries about inflation, sending bond yields higher.

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MSCI Inc.’s gauge of Asia Pacific shares was on track for its first decline in four sessions as equities dropped in Japan, Hong Kong and China. U.S. contracts dipped after American stocks advanced on Friday, with the S&P 500 chalking its best week since July as earnings buoyed sentiment.

Bond yields in New Zealand and Australia jumped after New Zealand’s inflation accelerated to the fastest pace in 10 years. Yields on Australia’s three-year bond surged as much as 18 basis points to the highest since January. Treasury yields extended a climb, while the dollar edged higher.

Energy prices extended their advance with West Texas Intermediate crude oil rising above $83 a barrel to the highest since 2014. Brent topped $85 a barrel, the highest since 2018.

China’s third-quarter gross domestic product is due Monday, along with monthly industrial and investment data, and will be closely watched to gauge the severity of electricity shortages. Meanwhile, People’s Bank of China Governor Yi Gang said authorities can contain risks posed to the Chinese economy and financial system from the struggles of China Evergrande Group.

Investors continue to grapple with worries about inflation amid surging energy shortages that are prompting more production cuts and sending bond yields higher. At the same time, the economic recovery remains patchy while central bankers are inching closer to paring back stimulus. U.S. consumer sentiment fell unexpectedly in early October, but retail sales advanced.

“We are starting to see some cracks in the transitory narrative that we’ve been hearing for quite some time,” Meera Pandit, global market strategist at J.P. Morgan Asset Management, said on Bloomberg Radio. “Rates will continue to ground higher from where we are. But I don’t think from a Fed perspective, when you think about the short end of the curve, that they are going to move much earlier than 2023. They are going to be a little bit more patient than the market expects right now.”

Bank of England Governor Andrew Bailey said the central bank will “have to act” to curb inflationary forces and warning higher energy costs mean price pressures will linger. Mohammed El-Erian, the chief economic adviser at Allianz SE and a Bloomberg columnist, said investors should prepare for increased market volatility if the Federal Reserve pulls back on stimulus measures set in motion by the Covid-19 pandemic.

Among U.S. earnings, Goldman Sachs Group Inc., Charles Schwab Corp. and Alcoa Corp. reported positive results.

Elsewhere, Bitcoin rallied back above $62,000 as the first U.S. Bitcoin futures ETF may debut Monday.

For more market analysis, read our MLIV blog.

Events to watch this week:

Earnings roll in, including from AT&T Inc., Barclays Plc, Johnson & Johnson, Netflix Inc. and Tesla Inc.
China releases retail sales, industrial production, GDP data, Monday
Bank Indonesia rate decision and briefing, Tuesday
China’s NPC Standing Committee starts a meeting Tuesday that goes on through Oct. 23. A review of anti-monopoly regulations is on the agenda
U.S. housing starts, Tuesday
EIA crude oil inventory report, Wednesday
China property prices, loan prime rates, Wednesday
U.S. Conference Board leading index, U.S. existing home sales, jobless claims, Thursday
Fed Chair Jerome Powell takes part in policy panel discussion, Friday