By Stephen Kirkland and Vildana Hajric
U.S. stocks dropped in early trading as investors assessed prospects of a surge in commodity prices on the outlook for inflation and economic growth. Treasury yields rose and the dollar gained.
The S&P 500 fell for a third day, down 0.7% as all but three of the 11 major industry groups declined, with financials and social media stocks leading losses. The tech-havey Nasdaq 100 also slid 0.7%. Oil jumped on the prospect of a ban on Russian supplies, with Brent crude rising as high as $139 a barrel, before trading closer to $120. European gas, palladium and copper hit all-time highs.
The Biden administration is considering whether to ban the import of Russian oil and energy products, a move that could add to economic pressure as more companies pull out of the country in response to Moscow’s invasion of Ukraine. Ukrainian and Russian officials will meet for a third round of talks, but hopes for progress in the meeting later on Monday are low as Russian leader Vladimir Putin says Kyiv must to agree to his demands if fighting is to end.
“The longer oil prices and inflation remain elevated — and thereby threaten an early demise of this economic expansion and bull market — the more investors will trim their exposure to equities,” wrote Sam Stovall, chief investment strategist at CFRA. “Investor uncertainty should elevate the angst.”
The U.S. bond market’s 10-year inflation forecast jumped to a record 2.785%, while the yield on the benchmark Treasury bond rose 6 basis points to 1.79%. A gauge of the dollar rose for a third day, trading at the highest since 2020.
Commodities from grains, metals have also surged on concerns of chaos in raw-material flows due to the invasion and sanctions on Russia that are turning the resources powerhouse into a global pariah. Commodity-linked currencies strengthened.
The global economy was already struggling with high inflation due to the pandemic. The Federal Reserve and other key central banks now face the tricky task of tightening monetary policy to contain the cost of living without upending economic expansion or roiling risky assets.
“For the U.S. economy, we now see stagflation, with persistently higher inflation and less economic growth than expected before the war,” Ed Yardeni, president of Yardeni Research, wrote in a note. “For stock investors, we think 2022 will continue to be one of this bull market’s toughest years.”
In Russia, Putin signed a decree allowing the government and companies to pay foreign creditors in rubles, seeking to stave off defaults while capital controls remain in place.
More businesses pulled back on their operations in Russia, including streaming giant Netflix Inc. and social-media service TikTok, which is owned by China-based ByteDance Ltd.
Meanwhile, China warned the U.S. against trying to build what it called a Pacific version of NATO, while declaring that security disputes over Taiwan and Ukraine were “not comparable at all.”
The Swiss franc, typically a refuge in times of stress, retreated against the dollar after a governing board member of the Swiss National Bank said it’s ready to intervene to tackle rapid strengthening.
Here are some key events this week:
- Apple new product event, Tuesday
- EIA crude oil inventory report, Wednesday
- China aggregate financing, PPI, CPI, money supply, new yuan loans, Wednesday
- Reserve Bank of Australia Governor Philip Lowe speaks, Wednesday and Friday
- European Central Bank President Christine Lagarde briefing after policy meeting, Thursday
- U.S. CPI, initial jobless claims, Thursday
Some of the main moves in markets:
- The S&P 500 fell 0.7% as of 9:55 a.m. New York time
- The Nasdaq 100 fell 0.7%
- The Dow Jones Industrial Average fell 0.8%
- The Stoxx Europe 600 was little changed
- The MSCI World index fell 1%
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 0.3% to $1.0894
- The British pound fell 0.5% to $1.3164
- The Japanese yen fell 0.4% to 115.33 per dollar
- The yield on 10-year Treasuries advanced four basis points to 1.77%
- Germany’s 10-year yield advanced five basis points to -0.02%
- Britain’s 10-year yield advanced nine basis points to 1.29%
- West Texas Intermediate crude rose 0.9% to $116.75 a barrel
- Gold futures rose 0.9% to $1,984.30 an ounce
More stories like this are available on bloomberg.com.