Market Overview

Opening Bell: U.S. Futures, Global Shares, Bonds Sell Off After Inflation Surprise

  • S&P may enter bear market as futures drop
  • Some traders expecting 0.75% interest rate hike
  • Oil slumped

Key Events

Futures contracts on the Dow Jones, S&P 500, NASDAQ 100, and Russell 2000 and global stocks crashed lower on Monday after markets had already slumped on Friday following the announcement of higher than expected US inflation figures. Some market analysts are now expecting the US Federal Reserve to raise rates by 0.75% when it meets on Wednesday. 

Bond yields on longer dated Treasuries continue to rally.

Global Financial Affairs

All four US contracts were deep in the red to start the trading week, having extended a decline that began with a gap down last week. Dow futures are 1.75% in negative territory, and contracts on the tech-heavy NASDAQ 100 continue to take the brunt of the selloff, down 2.5%. The Russell 2000 was the second-worst performer.

In Europe, the STOXX 600 Index opened about 0.5% lower, extending a decline to its fourth straight day, and the third consecutive falling gap. The pan-European gauge has fallen to its lowest levels since March 2021.

Global markets have been in free fall since Friday’s data release showed US CPI was at a fresh forty-year high of 8.6% with shelter, food, and gas the most significant contributors.

The announcement sparked a bond selloff, putting the Fed in a precarious position: steepen the path to higher interest rates or allow inflation to keep getting hotter. In this «game of chicken» between Treasury traders and policymakers, the Fed will have to balance on an ever-thinner line between chasing inflation and overdoing it, causing a recession.

Yields on the 10-year note hit their highest level since November 2018 as investors are dumping bonds with long maturities in favor of short-dated bills. Another 0.25% hike will take bond traders to yields not seen since May 2011. Rising yields are also bearish for stocks because they offer an alternative attractive investment.

In a mirror image to stocks the dollar opened higher for the second day in a row. The greenback is now at its highest since May 12 and 0.35% below its 2021 high.

Gold opened lower on dollar strength.

Bitcoin slid for the seventh consecutive day and is now trading below $25K to its lowest level in 18 months, again disproving the idea that the cryptocurrency is an inflation hedge or store of value.

Bitcoin Daily

The token completed a bearish flag, which helped bears achieve a massive double-top which we have been waiting for since last year.

Oil opened sharply lower. The price has been falling for three days straight and is now below $119, as cases of COVID in Beijing increased again.

Oil Daily

The news upended hopes of China easing restrictions some of which have  contributed to the worst inflation in four decades. 

Up Ahead

  • The German ZEW Economic Sentiment survey for June is published on Tuesday.
  • US PPI figures are released on Tuesday.
  • On Wednesday, US crude oil inventories are printed. 

Market Moves

  • The MSCI World index fell 1%

  • The euro fell 0.4% to $1.0474
  • The British pound fell 0.7% to $1.2225

  • Germany’s 10-year yield rose four basis points to 1.6%
  • Britain’s 10-year yield increased two basis points to 2.49%

  • Brent crude fell 1.6% to $120.05 a barrel
  • Gold futures fell 0.8% to $1,861 an ounce

Source

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