Stocks Hit as Inflation Angst Sends Yields Higher: Markets Wrap

(Bloomberg) — A broad selloff in bond markets dragged stocks lower, putting a sudden halt to the artificial intelligence-fueled equity rally that has pushed the S&P 500 from one record high to the next.

Nasdaq 100 futures tumbled 1.4% while those for the S&P 500 fell 0.9%. The losses point to a bleak end to a week in which chipmakers led a narrow rally despite steadily rising yields and the absence of a US-Iran deal to reopen the Strait of Hormuz.

Bonds fell across the Americas, Europe and Asia as doubts grew over whether oil supplies from the Middle East will normalize anytime soon. Scorching wholesale inflation data in Japan offered a fresh warning of price pressures building throughout the global economy.

The yield on 10-year Treasuries climbed six basis points to 4.54%. Japan’s 30-year rate touched 4% for the first time since 1999. Political upheaval in the UK added to the selloff in gilts, with the 10-year yield surging 15 basis points to 5.14%. The dollar headed for its longest run of gains since March.

With a summit between President Donald Trump and China’s Xi Jinping ending without any path to resume flows through Hormuz, the impasse between the US and Iran is moving back into focus. Traders will now watch the next steps the two countries take after more than two months of war.

“There’s no question that momentum has been so aggressive on the upside that the risk of a correction is there,” Paul Skinner of Wellington Management told Bloomberg TV. “With a background of bond markets looking unsettled, with the problem of inflation, with the Strait of Hormuz not having a solution out of that Summit, I think there definitely is some volatility to come.”

Brent crude rose 2.7% to above $108 a barrel. Helima Croft, global head of commodity strategy at RBC Capital Markets, said an expectation that the Strait of Hormuz would reopen within the next month was “magical thinking.”

“There seems to be an emerging consensus that the Strait of Hormuz will reopen in June because the cost of continued closure will be too high,” she wrote. “We are very skeptical. The optimistic scenario seems predicated on the tenuous assumption that there is a relatively easy policy lever that can be pulled.”

The tech sector fueled losses in Europe and Asia too, with the Stoxx 600 falling 1.3%. South Korea’s high-flying Kospi index tumbled 6.1% as investors cashed out of Samsung Electronics Co. and SK Hynix Inc. Nvidia Corp. slid 2.3% in premarket trading after a seven-day streak of gains.

Meanwhile, the turmoil in UK markets is showing no sign of ending as investors price in the possibility of more expansive fiscal policy under a potential successor to Prime Minister Keir Starmer. Manchester Mayor Andy Burnham secured a pathway for a future challenge, unsettling investors who were rattled last year by his comments that the country was “in hock” to bond markets.

The prospect of a seventh prime minister in 10 years “is not a record of which any nation would be proud,” said Russ Mould, investment director at AJ Bell. “It is contributing to how the UK has the highest 10-year bond yield in the G7.”

Profit Taking

Growing price pressures and a series of key dates next month are setting up the stock market for profit taking, according to Bank of America Corp. strategists.

Michael Hartnett and his team cited the next OPEC gathering, the start of the World Cup, the Group of Seven summit and the first Federal Reserve FOMC meeting under Kevin Warsh as catalysts. US inflation is on course to exceed 5% by November’s midterm elections unless the 0.4% monthly gains of the past half year slow rapidly, they said.

A scenario where inflation climbs above 4% is “where risk assets get twitchy,” Hartnett said. “Bull capitulation into stocks and tech likely fully complete in next few weeks, early June ripe for taking some off table.”

Corporate Highlights:

Pershing Square Chief Executive Officer Bill Ackman said he’s taken a new stake in Microsoft Corp. after the shares declined, saying investors have underestimated the durability of the company’s software. China agreed to buy 200 Boeing Co. planes, President Donald Trump said, falling short of the 500 737 Max and additional widebody aircraft Chinese airlines were expected to buy. Nvidia Corp.’s major server assembly partner Hon Hai Precision Industry Co. reported a stronger-than-expected increase in quarterly profit, highlighting sustained spending on hardware essential for AI. Applied Materials Inc., the largest US supplier of semiconductor equipment, gave sales and profit forecasts that far exceeded analysts’ estimates. Some of the main moves in markets:

Stocks

The Stoxx Europe 600 fell 1.4% as of 10:28 a.m. London time S&P 500 futures fell 1.1% Nasdaq 100 futures fell 1.6% Futures on the Dow Jones Industrial Average fell 0.7% The MSCI Asia Pacific Index fell 2.1% The MSCI Emerging Markets Index fell 2.7% Currencies

The Bloomberg Dollar Spot Index rose 0.4% The euro fell 0.4% to $1.1625 The Japanese yen was little changed at 158.51 per dollar The offshore yuan fell 0.4% to 6.8125 per dollar The British pound fell 0.5% to $1.3336 Cryptocurrencies

Bitcoin fell 1.1% to $80,494.82 Ether fell 1.8% to $2,255.47 Bonds

The yield on 10-year Treasuries advanced six basis points to 4.54% Germany’s 10-year yield advanced seven basis points to 3.11% Britain’s 10-year yield advanced 14 basis points to 5.13% Commodities

Brent crude rose 3.2% to $109.15 a barrel Spot gold fell 2.1% to $4,553.28 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Neil Campling and Michael Msika.

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