LDN - Business

Stocks weak, bond bashing alive and kicking as U.S. CPI looms

[April 12, 2022] By Dhara Ranasinghe

LONDON (Reuters) - World stocks slipped to their lowest levels in almost a month, the dollar held firm and selling again gripped the world's biggest bond markets on Tuesday ahead of data expected to show annual U.S. inflation rising at its fastest pace in 40 years.

With U.S. 10-year Treasury yields rising to new highs above 2.80%, levels last seen late 2018, unease that an aggressive policy response to inflation from the U.S. Federal Reserve could undermine economic growth weighed on sentiment.

European shares opened 1% lower, Japan's blue-chip Nikkei stock index shed 1.81% and trade in U.S. equity futures pointed to a weak open for Wall Street.

That all left MSCI's world equity index flagging at its lowest levels in almost a month.

Economists polled by Reuters forecast the U.S. consumer price index (CPI) would post an 8.4% year-over-year increase in March, versus a 7.9% rise a month earlier.

"Markets have decided that central banks are late and need to do more to tame inflation, and moderate volatility in equities is not enough to stop this," said Nordea chief analyst Jan von Gerich.

"The reason for the wobble in equity markets is higher rates and geopolitics."

In early London trade, U.S. 10-year Treasury yields were up 5 basis points, while benchmark German Bund yields climbed to almost 0.88%, their highest level since 2015.

Federal Reserve Governor Chris Waller on Monday described rate hikes as a "blunt force" tool that may act like a "hammer", causing collateral damage to the economy.

STRONG DOLLAR

Higher Treasury yields supported the dollar.

The dollar index, a measure of the greenback's value against six peers, was back above 100 to touch its highest level in almost two years.

The dollar was a touch firmer at 125.50 yen, having risen on Monday to its highest since June 2015 at 125.77.

Japan's yen has hurt by the Bank of Japan's commitment to maintaining ultra-easy policy even as the likes of the Fed embark on tightening monetary policy.

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A broker looks at financial information on computer screens on the IG Index the trading floor in London, Britain February 6, 2018. REUTERS/Simon Dawson

And even latest warnings from Japanese policymakers, with Prime Minister Fumio Kishida warning on Tuesday that rapid currency moves are undesirable, failed to shore up the yen, which has shed over 3% this month.

The euro was also down 0.1% at $1.0869, unable to hold on to gains from a mini-relief rally on Monday after French leader Emmanuel Macron beat far-right challenger Marine Le Pen in the first round of presidential voting.

China's markets and oil prices gained ground as signs emerged that some of the COVID-19 restrictions were starting to ease in financial hub Shanghai, though dozens of other cities remain in partial or full lockdown.

An easing of China's regulations on the gaming sector also gave investors heart after a multi-year crackdown on parts of the country's technology industry.

China's blue chip CSI300 Index dipped into negative territory mid-session but roared back in the afternoon to rally almost 2%, which analysts attributed to the gaming restriction changes.

"The next few days and weeks in China are going to be challenging, COVID cases are still going up, but investors should not be focused just on COVID," said Suresh Tantia, a Credit Suisse strategist.

"The big story for China though is political easing and tech regulations starting to subside. Tech stocks have bounced today and we think there will be more policy easing so there is a situation where China will be easing when the rest of the world is tightening."

Brent crude rose 2.5% to $100.96 per barrel, while U.S. crude was almost 2.6% higher at $96.77.

Spot gold was little changed around $1,953 per ounce. GOL/

(Reporting by Dhara Ranasinghe; additional reporting by Scott Murdoch in HONG KONG; editing by Nick Macfie)

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