Stocks plunge, bonds fall as German surprise reignites inflation fears

A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying Nikkei Index charts (top) outside a brokerage in Tokyo, Japan, on March 10, 2022. REUTERS/Kim Kyung-Hoon

SINGAPORE, May 31 (Reuters) – Stocks faltered and bonds fell in Asia, while the dollar rose on Tuesday after high inflation in Germany ratcheted up nerves over the pace and scale of price hikes. impending interest rates.

Rising energy prices added to concerns about continuing consumer hardship. Brent crude futures hit a two-month high of $122.43 a barrel after the European Union pledged to cut imports of Russian oil by the end of the year.

US Treasuries tumbled as the US holiday returned on Monday, pushing the 10-year bond yield up nearly 10 basis points (bps) to 2.8405%.

German Bund yields rose 8.1 basis points overnight after German consumer prices rose at their fastest pace in half a century, bolstering the case for an outsized rise European Central Bank interest rates in July. Read more

Eurozone inflation data is due later on Tuesday.

Figures from China’s Purchasing Managers’ Index (PMI) showed another month of contraction in services and manufacturing activity, albeit at a reduced pace of decline.

On stocks, S&P 500 futures gave up early gains to fall flat at the start of the Asian session, and Nasdaq 100 futures rose 0.4%. MSCI’s broadest non-Japan Asia-Pacific equity index (.MIAPJ0000PUS) ended a two-day winning streak and fell 0.2%. The Japanese Nikkei (.N225) fell 0.1%.

“The focus now is really on the US economy and China,” said Khoon Goh, head of Asia research at ANZ Bank in Singapore.

“The world’s two largest economies are slowing down, for different reasons, and that’s not great for the global growth trajectory.”

Factory output in Japan’s third-largest economy also fell sharply in April as Chinese demand slumped, data showed on Tuesday. Read more

May figures showed China’s official PMI at 49.6, indicating a contraction in factory activity but at a slower pace than in April, when the figure was 47.4. Read more

Growth concerns dampened a two-week rally for exporter currencies globally and stabilized the US dollar as investors once again leaned toward safety.

Warmongering remarks from US Federal Reserve Governor Christopher Waller also overturned recent expectations that the Fed could take a breather after the June and July hikes. Read more

“I’m advocating 50 (basis point hikes) on the table at every meeting until we see substantial reductions in inflation. Until we get that, I don’t see the point in m ‘stop,” Waller said.

Fed funds futures fell sharply, especially contracts for the first few months of next year, as investors braced for relentless interest rate hikes that would push the benchmark rate toward 3% by mid-2023.

The dollar was trading at $1.0744 to the euro on Tuesday, up 0.3%, and at 128.16 yen, up around 0.4%.

The trade-sensitive Australian and New Zealand dollars fell, with the Aussie down 0.2% to $0.7180 and the Kiwi 0.4% to $0.6530.

Oil prices rose after the European Union agreed to drastically reduce oil imports from Russia by the end of 2022. read more

U.S. crude futures hit $117.70 a barrel.

The stronger dollar pushed spot gold a fraction lower to $1,848 an ounce. Bitcoin rallied strongly overnight, jumping almost 8% and above $32,000 for the first time in three weeks. It was just below at $31,540 at the start of the Asian session.

Reporting by Tom Westbrook; Editing by Bradley Perrett

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