International Finance: Stocks, treasuries fall as inflation angst rises: markets wrap

International Finance: Stocks, treasuries fall as inflation angst rises: markets wrap

Some of the biggest losses were in chip-related equities in Japan, South Korea and Taiwan, where traders returned from holidays to join the global selloff in semiconductor shares

The Biden administration’s curbs on China’s access to US semiconductor technology has wiped out more than $240-billion from the sector’s market value globally and spilled over into the currency market, weighing on the Korean won and Taiwan dollar. 

A measure of greenback strength climbed to the highest this month and the yen traded within sight of the original level that spurred Japanese authorities to defend the currency in September. The yuan slid as worry mounts that Beijing will uphold its Covid Zero policy well after the Chinese Communist Party Congress this month.

Yield on the 30-year Treasury rose to the highest since 2014 as trading in US government bonds resumed following a break for Columbus Day. The 10-year yield climbed around 10 basis points to 3.98%.

Investors continued to parse comments from Federal Reserve officials for any signs of a let up in the central bank’s hawkish stance. Vice chair Lael Brainard laid out a case for caution, noting that previous rate increases were still working through the economy. Chicago Fed president Charles Evans said he wants to quickly get to a point where policy makers can feel comfortable pausing in order to reduce the risk of overshooting. 

The mood remains fragile ahead of Thursday’s US inflation data, with the case for another 75 basis-point rate hike likely to be strong if the data comes in hotter-than-expected. 

The heads of the International Monetary Fund and World Bank warned of a rising risk of a global recession as advanced economies slow and faster inflation forces the Fed to keep raising interest rates, adding to the debt pressures on developing nations.

“A recession is very possible — our subjective probability over the next year is 35% — but we think it would require additional shocks,” Goldman Sachs Group chief economist Jan Hatzius wrote in a note. Renewed upward pressure on fuel prices is an area to watch and Goldman also sees “a small but growing risk of an unnecessary monetary policy overshoot if Fed officials focus too much on lagging inflation indicators”. 

Meanwhile, Russian President Vladimir Putin threatened further missile attacks on Ukraine after hitting Kyiv and other cities in the most intense barrage of strikes since the first days of its invasion, marking a dangerous new escalation in the war.

“It’s little wonder investors enter the week in a dreary mood, especially with headlines from Ukraine signalling a further escalation in geopolitical tensions,” Christopher Smart, chief global strategist at Barings, said in a note. “Of course, markets are meant to look ahead, but it’s hard not to see the next few quarters bringing more of the same.” 

Oil swung between gains and losses as concerns over a global slowdown and potentially weaker demand vied with a tightening supply outlook after OPEC last week announced an output cut. Gold remained under pressure after ending the previous volatile session lower. BM/DM

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