(Bloomberg) — Stocks are starting the week weaker as investors brace for bond-market volatility and assess the economic hit from the rapidly spreading Covid omicron variant.
Shares edged lower in Australia and South Korea. U.S. futures slipped after the S&P 500 posted the worst start to a year since 2016 as expectations of faster-than-anticipated U.S. interest-rate increases roiled bond markets. The tech-heavy Nasdaq 100 had its worst week since February amid a rotation out of high-growth tech names. Japan is shut for a holiday Monday.
Treasury yields climbed across the board last week in a selloff sparked by Federal Reserve minutes signaling a willingness to start hiking rates as soon as March. The yield on the U.S. 10-year note touched the highest level in nearly two years. Cash Treasuries won’t trade in Asia because of the Japan holiday.
U.S. inflation data this week will be keenly watched as concerns grow the Fed is behind the curve in tackling elevated price pressures. U.S. employers added fewer staff than expected in December, but wages rose more than forecast, boosting the Fed’s case to tighten liquidity.
Markets face increasing volatility as investors grapple with how to reprice assets as the pandemic liquidity that helped drive equities to record highs is withdrawn. At the same time, the spread of omicron is posing a fresh test for economic activity.
“The U.S. Fed needs to tread carefully in removing policy accommodation – it should not happen too fast otherwise it risks a disruption to the rebound in economic growth and could lead to another ‘taper tantrum,’” Diana Mousina, senior economic in the multi-asset group at AMP Capital, said in a note. She sees more volatility this year from inflation, Fed rate hikes and geopolitics as well as U.S. mid-term elections.
Chinese equities will be in the spotlight. The China Securities Regulatory Commission said it will adopt various measures to avoid volatility and “firmly” prevent big fluctuations after stocks had the worst start for a year since 2016.
Elsewhere, Bitcoin traded around $42,000 as cryptocurrencies continue to struggle.
Here are some key events this week:
- Atlanta Fed President Raphael Bostic discusses the economic outlook Monday
- Fed Chair Jerome Powell’s confirmation hearing in the Senate Banking Committee. Tuesday
- Kansas City Fed President Esther George, St. Louis Fed President James Bullard discuss economy and monetary policy Tuesday
- Wednesday: EIA crude oil inventory report; China PPI, CPI
- U.S. CPI Wednesday
- U.S. Senate Banking Committee hearing for Lael Brainard, nominated as Fed vice-chair. Thursday
- Richmond Fed President Thomas Barkin; Philadelphia Fed President Patrick Harker; Chicago Fed President Charles Evans on economy and monetary policy. Thursday
- Bank of Korea policy decision, briefing Friday
- Earnings 4Q: Wells Fargo, Citigroup, JPMorgan. Friday
- New York Fed President John Williams speaks Friday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.2% as of 9 a.m. in Tokyo. The S&P 500 fell 0.4%
- Nasdaq 100 futures lost 0.1%. The Nasdaq 100 fell 1.1%
- Australia’s S&P/ASX 200 Index fell 0.4%
- South Korea’s Kospi index slipped 0.1%
- Hang Seng Index futures rose 0.4% earlier
Currencies
- The Japanese yen was at 115.63 per dollar
- The offshore yuan was at 6.3857 per dollar
- The Bloomberg Dollar Spot Index edge up 0.1%
- The euro was at $1.1357
Bonds
- The yield on 10-year Treasuries advanced four basis points to 1.76% Friday
- Australia’s 10-year bond yield rose six basis points to 1.92%
Commodities
- West Texas Intermediate crude fell 0.5% to $78.51 a barrel
- Gold was at $1,795.07 an ounce
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