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Tech led sell-off routs US stocks as bond yields surge, oil, gold down

oil and USD

Asia markets are expected to be under pressure following a selloff in the tech and energy stocks on US markets overnight amid surging bond yields ahead of the FOMC meeting later this week and plunging oil prices on positive expectations towards ceasefire talks between Russia and Ukraine. Chinese stocks tanked on renewed lockdowns in some major cities, with the China A50 falling 3.5% on Monday.

SPI futures are indicating a 0.9% drop on the S&P/ASX 200 at the open and the NZX 50 was down 14 points in the first hour of trading.

US and EU stocks

The Dow Jones Industrial Average was flat, the S&P 500 slid 0.74%, and the Nasdaq declined 2.04%.

Growth stocks are facing ongoing headwinds amid surging bond yields. The technology and consumer discretionary sectors were hit due to disruptions to supply chains by lockdowns in Shenzhen, China, due to renewed Covid outbreaks, where Foxconn, a major supplier to Apple, suspended operation. Apple, Amazon, and the Google parent Alphabet all fell between 2-3%. Tesla was down more than 3%. 

Energy stocks underperformed as oil futures continue retreating, with hopes for ongoing talks between parties on a cease-fire in Ukraine. Devon Energy sank more than 10%, and Occidental fell more than 4%. 

The financial sector saw benefits from rising bond yields and an anticipation of the first US Federal Reserve rate hike since 2020 at the upcoming FOMC meeting. JPMorgan Chase was up 1%, Wells Fargo rose 2.8%

European markets were more resilient as falling oil prices and ceasefire talks sparked a relief rally, with Euro Stoxx 50 up 1.47%, DAX rising 2.2%, and CAC 40 adding 1.75%. The FTSE 100 climbed 2.57%.

Treasuries

US government bond yields jumped ahead of the FOMC meeting. The 10-year US Treasury yield surged to 2.1%, the highest since July 2019. The 2-year Treasury yield rose to 1.86%. The 10-2-year treasury yield spread is at the tightest range since March 2020, indicating an ongoing stagflation concern in the economy.

The EU bond yields were also up. Germany's 10-year Bond Yield rose to 0.35%, and the France 10-year Bond Yield was up to 0.83%. The UK 10-year Gilt yield climbed to 1.60%.

Commodities

With supply concerns fading on ceasefire talks, investors shifted focus to central bank policy, which paves the way for an ongoing strengthening USD and pressure on the commodity prices.

The WTI futures price tanked 6.7%, to US$102 per barrel after briefly dropping below US$100. Brent crude futures dropped 5.1 %, to US$106.90 per barrel.

The precious metals, including gold, silver, and palladium all tumbled on a strong USD and fading safe-haven demand. Gold futures fell 1.2%, to US$1,956 per ounce. Silver slid 3.4% and palladium plummeted 13.5%.

Currencies

USD consolidated ahead of a highly expected rate hike in the upcoming FOMC meeting on Thursday. The dollar index traded just under the 100-mark approaching the highest level since May 2020.

Commodity currencies, including AUD, NZD, and CAD fell on the weakening commodity prices. The risk haven currencies, such as JPY and CHF all softened amid the rising US bond yields. The eurodollar rebounded marginally and the pound sterling also weakened against the dollar.

Cryptocurrencies

The crypto markets were flat, bitcoin trading around US$38,700, and Ethereum was at just above US$2,500.


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