Stocks, bonds fall on inflation worries; dollar up: markets wrap

Stocks slid with bonds Friday and the dollar rose as inflation, rising borrowing costs and China’s Covid lockdowns depressed sentiment.

European stocks extended their losses and were set for the worst weekly drop in two months, with leisure and technology shares among the biggest losers. Asian stocks retreated, although the overall loss was smaller than Thursday’s slide of more than 3.5% in the S&P 500 index and 5% in the Nasdaq 100 gauge. US futures were lower.

Treasuries extended a tumble that’s lifted the US 10-year yield past 3% while a dollar gauge neared a two-year high.

Risk aversion has swept away the relief rally that followed the Federal Reserve decision Wednesday. The US central bank raised interest rates by the most since 2000 while pushing back against talk of super-sized increases.

That led to temporary respite in markets as traders pared the most aggressive rate-hike bets but sentiment quickly skidded again on the cold reality of tightening financial conditions. The war in Ukraine and China’s Covid outbreak are also stirring angst and stoking concerns about the odds of a recession.

“Learning to live with tighter liquidity will not be a smooth process, in our opinion, although froth has already been taken away from some parts of financial markets,” Barclays strategist Emmanuel Cau wrote in a note. “Investors should keep their seat belt on.”

Elevated commodity prices are feeding into rising costs. West Texas Intermediate crude has topped $108 a barrel on supply concerns stemming from a European Union proposal to sanction Russian oil.

Meanwhile, China reaffirmed its preference for a strategy of lockdowns to eliminate Covid despite the economic cost. Top leaders warned against questioning President Xi Jinping’s so-called Covid Zero strategy.

Separately, the nation ordered central government agencies and state-backed corporations to replace foreign-branded personal computers with domestic alternatives within two years.

Later Friday, the US jobs report may show that rising wage costs are adding to the inflationary pressures that have been undermining market sentiment.

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