(Bloomberg) — Stocks and U.S. equity futures slid Monday, while havens including sovereign bonds rallied, amid fears of an inflation shock in the world economy as oil soared on the prospect of a ban on Russian crude supplies.
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S&P 500 and Nasdaq 100 contracts fell more than 1% and Japan led losses in Asian shares. Brent crude hit $139 a barrel, and West Texas Intermediate scaled $130 a barrel, before both paring some of the intense rally.
Secretary of State Antony Blinken said Sunday the U.S. and its allies are looking at a coordinated embargo following Russia’s invasion of Ukraine, while ensuring appropriate global supply. High energy prices threaten to stall global growth, a risk that is sending tremors across markets.
The euro sank — dropping to parity against the Swiss franc for the first time since 2015 — on concerns about the economic outlook for Europe, which relies on Russian energy. Sovereign bonds, gold and the dollar advanced, with the U.S. 10-year Treasury yield falling to about 1.70%
The Swiss franc, a bolthole 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.
Grains, metals and energy have surged on concerns of supply disruptions due to Russia’s military action, ensuing sanctions and a reluctance to trade with a resource-rich nation that’s becoming a global pariah. Palladium hit a record.
The global economy was already struggling with high inflation due to pandemic-era snarls. 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.”
‘Stagflationary Shock’
Fed Bank of Chicago President Charles Evans said Friday the central bank should increase interest rates to close to its “neutral” setting this year, implying as many as seven quarter-point hikes. Markets are pricing in about five such moves in 2022.
“Central banks are facing an exogenous stagflationary shock they cannot do much about,” Silvia Dall’Angelo, senior economist at Federated Hermes, wrote in a note.
In Russia, President Vladimir 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. Sanctions will determine if international investors are able to collect payments, the Finance Ministry said.
China signaled more stimulus is on the cards by setting an economic growth target above forecasts. Premier Li Keqiang vowed at the opening of the National People’s Congress, the Communist Party-controlled parliament, to take bold steps to protect the economy as risks mount.
Here are some key events this week:
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Chinese Foreign Minister Wang Yi briefing during NPC, Monday
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China trade, foreign reserves, Monday
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Apple new product event, Tuesday
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EIA crude oil inventory report, Wednesday
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China aggregate financing, PPI, CPI, money supply, new yuan loans, Wednesday
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Reserve Bank of Australia Governor Philip Lowe speaks, Wednesday and Friday
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European Central Bank President Christine Lagarde briefing after policy meeting, Thursday
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U.S. CPI, initial jobless claims, Thursday
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 1.4% as of 9:22 a.m in Tokyo. The S&P 500 fell 0.8% Friday
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Nasdaq 100 futures lost 1.8%. The Nasdaq 100 fell 1.4% Friday
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Japan’s Topix index declined 2.3%
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Australia’s S&P/ASX 200 Index fell 0.6%
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South Korea’s Kospi index dropped 1.7%
Currencies
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The Japanese yen was at 114.92 per dollar, down 0.1%
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The offshore yuan was at 6.3290 per dollar
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The Bloomberg Dollar Spot Index rose 0.3%
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The euro was at $1.0877, down 0.5%
Bonds
Commodities
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West Texas Intermediate crude surged 8% to $124.90 a barrel
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Gold rose 0.9% to $1,987.86 an ounce
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