Stock market sell-off intensifies overnight. Tech stocks, in particular, continued to be pressured by inflation fears and a -1.3% decline in the NASDAQ future suggests that the sell-off in not over yet.
The late fade on Wall Street is likely to create some waves overnight amid worries that inflation will be a bigger threat than the Fed suggests. Even though officials continue to play down accelerating price pressures and stress they will be transitory, inflation will hurt various asset classes nonetheless.
And it was big tech that took it on the chin Monday, dropping over -2.5%.
Treasuries rallied a bit on the erosion in risk appetite, with yields falling 1 bp to 2 bps. The wi 3-year was fractionally lower at 0.320%, with the wi 10-year closing at 1.600% and the wi 30-year at 2.2310%.
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The NASDAQ already lost -2.6% yesterday and European bourses have sold off the most since January, with DAX and FTSE 100 down -2.2% and -2.3%, the Stx Europe 600 has lost -2.1%, despite a much stronger than expected German ZEW investor confidence reading and ECB comments from Schnabel that once again focused on the transitory nature of the current spike in inflation.
Mainland China bourses managed to escape the carnage and the CSI 300 lifted 0.6%, the Shanghai Comp 0.4%, but the Hang Seng lost -2%, Topix and Nikkei corrected -2.4% and -3.1% respectively, while the ASX was down -1.1% at the close.
Key Market Movers:
- U.S. data calendar has March JOLTS, NIFB small business optimism for April
- Canada calendar quiet – manufacturing, BoC Governor due later this week
- Euro firmer vs dollar and other peer currencies, but EUR-USD facing downside risk
- Dollar ebbed back after rising with Treasury yields ahead of Wed’s U.S. CPI data
- EGBs sold off with stocks, Treasuries outperformed as reflation trades resurface
- German and Eurozone ZEW investor confidence at record highs in May
- China producer prices jumped 6.8% y/y in April, CPI 0.9% y/y
Turning to today: Will the Fed Save the day?
The $126 bln May refunding begins today with the $58 bln 3-year note auction. The richening left the wi at the lowest level in two months. It is yet to be seen how much support the auction receives at this rate.
The FOMC’s expectation that it will maintain ZIRP for “some time” into the future should help underpin. The 10- and 30-year auctions will be different stories however.
There will be plenty of Fedspeak, though we don’t believe any will change their views after the jobs report as officials have always said they don’t determine policy on one month’s data. And under the current policy stance, Chair Powell has reiterated it will require months of data to confirm employment and inflation have met their metrics. Fedspeakers today include doves Williams, Brainard, Daly, Bostic, and Kashkari, along with the more centrist Harker.
The data slate has March JOLTS and the NIFB small business optimism index for April. The markets will be more interested in CPI Wednesday. On the earnings calendar are Duke Energy, Air Products, Marriot, BioNTech, Simon Property, Roblox, IFF, The Trade Desk, Eversource Energy, Tyson Foods, BeiGene, Occidental Petroleum, Ameren, Viatris, Novavax, Trex, NortonLifeLock, and Weibo.