Futures, stocks drop as yields climb; dollar gains: markets wrap

US futures and Asian stocks declined Tuesday as investors fretting that surging borrowing costs will dent growth dumped risk assets. The dollar advanced and the yen sank to a 20-year low.

A surprise half-point interest-rate increase in Australia highlighted just how big a problem inflation is for central bankers. MSCI Inc.’s gauge of Asia-Pacific shares fell the most in more than a week.

Equities in Japan pared gains but the currency’s plunge on a widening interest-rate gap with the US provided a tailwind for exporters. Australia’s three-year yields soared and stocks fell as the Reserve Bank of Australia blindsided the market with the outsized hike to combat rising costs. China technology stocks slid as traders sought clarity on the government’s regulatory stance. European futures dropped.

Asian currencies tumbled and a dollar gauge rose to the highest in more than two weeks. Treasury yields inched up after five- and 10-year yields jumped over 3% for the first time since mid-May ahead of a slew of new debt supply before crucial inflation data at the end of the week.

Investors are reluctant to take on risk and volatility remains elevated. Equities are struggling to mount a sustainable rebound amid fears policy makers need to be even more aggressive in their withdrawal of stimulus to rein in inflation, hurting the economy and corporate earnings. The US jobs report on Friday validated the Federal Reserve’s aggressive monetary tightening path, while surging yields are shaping up as a headwind for sentiment.

“We are going to continue to bounce back and forth through the summer,” Julie Biel, portfolio manager and senior research analyst at Kayne Anderson Rudnick, said on Bloomberg Radio. “Overall, people are trying to find some sense of direction, just how we are going to land this economy without a recession, this so-called soft landing.”

The RBA responded to price pressures with its biggest rate increase in 22 years — predicted by just three of 29 economists — and indicated it remained committed to “doing what is necessary” to rein in inflationary pressures.

On Thursday, the European Central Bank is set to announce an end to bond purchases this week and formally begin the countdown to an increase in borrowing costs in July, joining global peers tightening monetary policy in the face of hot inflation.

Key events to watch this week:

• World Bank’s “Global Economic Prospects” report Tuesday
• Reserve Bank of India rate decision Wednesday
• OECD Economic Outlook, a twice-yearly analysis of major global economic trends and prospects for the next two years. Wednesday
• European Central Bank rate decision, Christine Lagarde briefing, Thursday
• China trade, new yuan loans, money supply, aggregate financing. Thursday
• US CPI, University of Michigan consumer sentiment Friday
• China CPI, PPI Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.5% as of 7:29 a.m. in London. The S&P 500 rose 0.3%
• Nasdaq 100 futures lost 0.7%. The Nasdaq 100 rose 0.4%
• Topix index rose 0.4%
• Australia’s S&P/ASX 200 Index lost 1.6%
• Kospi index fell 1.7%
• Hang Seng Index lost 0.9%
• Shanghai Composite Index was little changed
• Euro Stoxx 50 futures fell 0.7%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%
• The Japanese yen fell 0.7% to 132.82 per dollar
• The offshore yuan was at 6.6759 per dollar, down 0.3%
• The euro was at $1.0675, down 0.2%

Bonds

• The yield on 10-year Treasuries was at 3.05%
• Australia’s 10-year bond yield rose six basis points to 3.55%. The three-year yield jumped 15 basis points to 3.12%.

Commodities

• West Texas Intermediate was at $119.22 a barrel, up 0.6%
• Gold was at $1 840 an ounce