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Stocks And Bonds Fall As Germany's Surprise Raises Inflation Concerns

Aria Thomas

May 31, 2022 11:35


After a high inflation data in Germany heightened concerns about the pace and magnitude of upcoming interest rate hikes, stocks and bonds in Asia fluctuated and the dollar strengthened on Tuesday.

Increasing energy costs heightened concerns about the permanence of consumer suffering. Brent crude futures reached a two-month high of $122.43 a barrel after the European Union pledged to reduce its oil imports from Russia by the end of the year.

Returning from the U.S. holiday on Monday, U.S. treasuries declined, driving the yield of the 10-year bond up nearly 10 basis points (bps) to 2.8405 percent.

German consumer prices grew at their highest pace in half a century overnight, bolstering the case for an outsized European Central Bank interest rate hike in July. German bund rates increased by 8.1 basis points overnight.

Tuesday afternoon will feature Eurozone inflation figures.

Chinese Purchasing Managers' Index (PMI) figures showed another month of contraction in services and manufacturing activity, though at a reduced pace of decline.

In the stocks market, S&P 500 futures reversed early gains to trade flat at the start of the Asian session, while Nasdaq 100 futures rose 0.4%. MSCI's broadest index of Asia-Pacific equities outside Japan lost a two-day gaining streak and fell 0.2%. Japan's Nikkei dipped 0.1 percent. (T)

According to Khoon Goh, head of Asia research at ANZ Bank in Singapore, the current focus is on the U.S. economy and China.

The fact that the world's two largest economies are slowing for separate reasons is not good for the global growth trajectory.

Data released on Tuesday revealed that factory output in the world's third-largest economy, Japan, declined substantially in April as Chinese demand waned.

China's official PMI in May was 49.6, showing a decline in industrial activity, but at a slower rate than in April, when it was 47.4.

Growth fears have halted a two-week advance for exporter currencies worldwide and have stabilized the U.S. dollar as investors have resumed their flight to safety. 

Governor of the U.S. Federal Reserve Christopher Waller's hawkish comments further diminished recent hopes that the Fed would take a breather after the June and July rate hikes.

"I advocate putting 50 (basis point increases) on the table at each meeting until we observe a significant decline in inflation. I don't see why we should stop until we obtain it "Waller remarked.

Fed Funds futures plummeted, particularly those for the early months of next year, as investors braced for persistent interest rate hikes that would drive the benchmark rate to 3 percent by mid-2023.

The dollar traded on Tuesday at $1.0744 per euro, up 0.3%, and 128.16 per JPY, up around 0.4%.

The trade-sensitive Australian and New Zealand dollars declined, with the Australian dollar down 0.2% to $0.7180 and the New Zealand dollar falling 0.4% to $0.6530.

After the European Union agreed to reduce its oil imports from Russia by the end of 2022, oil prices increased.

U.S. crude futures increased to $117.70 a barrel.

The strengthening dollar pulled the spot price of gold down to $1,848 per ounce. Overnight, Bitcoin surged over 8 percent and above $32,000 for the first time in three weeks. Early in the Asian session, the price was barely below $31,540.