Stocks, Futures Drop; Bonds Steady Post-Powell: Markets Wrap

(Bloomberg) — Stocks fell with U.S. and European equity futures Wednesday as investors balanced the risk of stronger inflation driving global rates higher against the Federal Reserve’s pledge of continued policy support.

A gauge of Asian shares slid the most in almost a month, with Hong Kong equities tumbling on the city’s plan to raise stamp duty on stock trading for the first time since 1993. Chinese gauges retreated for a third day.

The S&P 500 Index reversed losses Tuesday to close in the green following Fed Chair Jerome Powell’s message that the central bank was nowhere close to unwinding its easy policy. Cyclicals outperformed, while the tech heavy Nasdaq 100 closed lower despite a late rally.

Ten-year Treasury yields held just below the one-year high reached Monday. The dollar dipped. The New Zealand dollar advanced even as the central bank said “prolonged” stimulus was needed. Oil declined after an industry report pointed to the first gain in U.S. crude stockpiles in five weeks.

Powell voiced cautious expectations for a return to more-normal activity later this year and said that higher bond yields reflected economic optimism, not inflation fears. While that helped assuage some investors betting on a global recovery spurred by vaccines and fiscal aid, there are also lingering concerns that stock valuations are stretched.

“The market — while applauding impending fiscal largesse, stronger economic growth, and a markedly more positive earnings outlook — can’t help but wonder whether inflationary pressures will remain ‘transient,’ to use Fed Chairman Jerome Powell’s favorite word,” said Quincy Krosby, chief market strategist at Prudential Financial.

A vote on President Joe Biden’s $1.9 trillion Covid-19 relief bill is due to be held in the House of Representatives on Friday. Money-market traders have pulled forward their rate-hike expectations since the start of this year, and now see the Fed raising interest rates a quarter point by the middle of 2023.

Commodities stabilized after their recent run-up, with the Bloomberg Commodity Spot Index just shy of its highest level since 2013. Elsewhere, Bitcoin rallied and hovered around $50,000 after a bout of volatility highlighted lingering doubts about the durability of the token’s gains.

Some key events to watch this week:

EIA crude oil inventory report is out Wednesday.Finance ministers and central bankers from the Group of 20 will meet virtually Friday. U.S. Treasury Secretary Janet Yellen will be among the attendees.

These are some of the main moves in markets:

Stocks

S&P 500 futures fell 0.4% as of 7:06 a.m. in London. The S&P 500 index rose 0.1% on Tuesday.Japan’s Topix index dipped 1.8%.South Korea’s Kospi index fell 2.5%.Australia’s S&P/ASX 200 Index shed 0.9%.Hong Kong’s Hang Seng Index tumbled 3%.Shanghai Composite Index fell 2%.Euro Stoxx 50 futures lost 0.1%.

Currencies

The yen fell 0.3% to 105.51 per dollar.The offshore yuan was at 6.4599 per dollar.The Bloomberg Dollar Spot Index shed 0.1%.The euro bought $1.2159, rising 0.1%.The pound jumped 0.6% to $1.4198.

Bonds

The yield on 10-year Treasuries held at about 1.34%.Australia’s 10-year bond yield rose five basis points to 1.61%.

Commodities

West Texas Intermediate crude fell 0.4% to $61.40 a barrel.Gold was up 0.1% at $1,807.35 an ounce.

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