U.S. Futures, Asia Stocks Dip as Bond Yields Jump: Markets Wrap

Market Trading EssentialsOctober 18, 2021

2 minutes read

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

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Equities fell in Japan and South Korea. Australia rose. U.S. contracts dipped after Wall Street 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.

China’s third-quarter gross domestic product due Monday along with monthly industrial and investment data 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.

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

Despite the risk-on tone, investors continue to grapple with worries about inflation amid surging energy shortages that are prompting more production cuts. 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.

“Sentiment really got quite bearish,” Kyle Rodda, market analyst at IG Group, said on Bloomberg Television. “Markets are feeling reasonably emboldened by the fact that we are probably going to see some reasonably robust results from U.S. corporates this quarter. But the longer term issue remains what is happening with the global supply shock brought upon by the pandemic, the inflation pressure that’s coming about from that, and the very fine line that the Fed is walking to try and tamp down these inflation risks, while at the same time not stepping on the recovery or undermining financial market strength.”

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.

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