Equities Counted Sharp Loss, Bonds Fell on Chinese Inflation and Policy Tightening

Equites and bonds fell on Monday as economic data and surging COVID-19 infections in China weighing on sentiment.

Stocks in Mainland China and Hong Kong dipped sharply over 3% on close, while equities in South Korea, Thailand and Japan dipped marginally on close.

The MSCI Broad Market Index ex Japan is up by 0.16%.

Chinese producer price index gained 8.3% from a year earlier, however down from 8.8% in February. Along with soaring commodity prices due to the war in Ukraine as well as fresh new wave of COVID-19 inflections in China has added to economic constrains. Lockdowns to curb the spread of infections across several cities and provinces have also disrupted food supplies, driving up prices for consumers during the month.

U.S. 10-year treasury bond yield climbed to 2.75% for first time since March 2019 as investors weigh fast pace inflation and impact of Federal Reserver’s policy tightening plan.

The 10-year benchmark yield jumped as much as five basis points after surging 32 basis points last week when the Federal Reserve Governor Lael Brainard said the central bank will raise interest rates steadily while starting balance-sheet reduction as soon as May.

Meanwhile, the U.S. inflation is expected to jump to 1.2% in March compared to gauge in February – underscoring the highest monthly reading in more than 15 years, according to Bloomberg consensus of economists. The official figure is set to be released on Tuesday.

Market sentiment continues to be shaped on Fed’s action and inflation sparked by commodity market disruption amid war in Ukraine. Additionally, China’s Covid lockdowns further threatens  supply-chain, further stoking costs.

“Hawkish FOMC and ECB minutes pointing to a faster exit from stimulus have pushed global yields higher and widened country spreads,” Subadra Rajappa, head of U.S. rates strategy at Societe Generale, wrote in a client note.

“Nervousness around a tighter French presidential election outcome has also contributed to the move.”

Federal Reserve Bank of Cleveland President Loretta Mester said she’s confident that the U.S. will avoid a recession as the Fed tightens policy, though the inflation rate will probably remain at more than 2% into next year.

Coordinating reverse release and lockdown in China lead to a dip in crude oil futures prices. The WTI inched down by 3.46% to trading around $94 a barrel while the Brent is down by 3.00% to trading around $99 a barrel.