Daily market review

US, Europe, Asia fall on rising bond yields, inflation talk

United States

Investors cut back on risk exposure as market interest rates continued higher, with US Treasury 2-year yields surging 9 basis points and topping 1 percent. The Dow Jones industrial average lost 1.5 percent, the S&P 500 fell 1.8 percent, and the NASDAQ dropped 2.6 percent.

Growth stocks were hit hardest as the market continued to rotate out of sectors most exposed to rising financing costs. Markets appear to be pricing in four rate increases from the Federal Reserve this year, with talk of even more, and speculation that a first move in March will be a shocking 50 basis points. On the coronavirus front, investors are focusing on the inflationary impact of protracted supply chain disruptions and worker shortages rather than deflationary effects as consumers stay home.

Among stocks, the highly-valued FANMAG complex suffered, with technology shares lagging notably including chipmaker Applied Materials, down 8.8 percent. Among communications services, Netflix fell 2.8 percent ahead of its earnings due Thursday, and Facebook/Meta was off 4.1 percent.

Among value/cyclicals, financials had a bad day, with Goldman Sachs dropping 7.0 percent after a profits miss due to rising staff costs which played on market worries over a broader wage-price spiral. Homebuilders were hit by rising interest rates, with Lennar off 6.3 percent. Rising oil prices helped energy stocks outperform but added to inflation worries, and energy stocks faded into the close.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil jumped US1.54 to US$87.91 while spot gold declined US$3.56 to US$1,813.87. The US dollar rose vs. most major currencies. Yields on the US Treasury 30-year bond rose 7 basis points to 2.20 percent, and the 10-year note was up 9 basis points at 1.87 percent.

Europe

European equities slipped as markets reacted to another uptick in bond yields, with the German 10-year bund yield test zero percent. The Europe-wide STOXX 600 and German DAX both lost 1.0 percent, the French CAC slipped 0.9 percent, and the UK FTSE 100 fell 0.6 percent.

European markets appear to be moving forward expectations European Central Bank rate hikes to the fall, along with another Bank of England rate move in the first quarter, alongside expectations for the Federal Reserve to raise rates four times this year, starting in March.

Among sectors, technology, financial services, industrials, chemicals, personal & household goods, travel & leisure, and media lagged. Rising oil prices helped oil & gas stocks outperform, along with telecom and basic resources.

Among companies reporting, Hugo Boss, the clothier, rose 1.8 percent after posting record sales. On the downside, Chr Hansen, the food business, fell 1.1 percent despite an earnings beat and analyst upgrade. Swatch, the luxury watch business, fell 0.9 percent after analyst downgrades.

Asia Pacific

Japanese stocks weakened late on rising bond yields after starting off better on hopes for a fast recovery from the latest wave of coronavirus infections. The Nikkei 225 slipped 0.3 percent and the Topix was down 0.4 percent. Banks were notable decliners, along with iron & steel, and pulp & paper stocks.

South Korea's KOSPI fell 0.9 percent and the Taiwan Taiex lost 0.8 percent with big-cap tech stocks suffering from rising market interest rates.

Chinese equities were mixed with support from rising real estate and energy stocks while health care lagged. China's CSI 300 index was up 1.0 percent and the Shanghai composite gained 0.8 percent. Hong Kong‘s Hang Seng index dipped 0.4 percent.

Declining US equity futures and rising bond yields weakened Australian equities with the All Ordinaries down 0.1 percent. Sectors were mixed with materials, real estate, and energy better while health care, financials, and travel & leisure lagged.

Looking ahead*

There are no major economic reports scheduled in Asia/Pacific for Wednesday. In Europe, German CPI, UK CPI, and UK PPI reports are on tap. In North America, US housing starts & permits and the Canadian CPI are due.

Global Stock Market Recap

Global Bond Market Recap

Global Currency Recap

Commodities and currencies

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