Stocks fall, bonds fall as German surprise fuels inflation fears

A man in a protective mask walks past an electronic board with charts (top) of the Nikkei index outside a brokerage in Tokyo, Japan, March 10, 2022 during the coronavirus (COVID-19) outbreak. REUTERS/Kim Kyung-Hoon

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SINGAPORE, May 31 (Reuters) – Stocks faltered and bonds fell in Asia, as the dollar rose Tuesday after hot inflation in Germany heightened nerves over the pace and magnitude of impending rate hikes.

Rising energy prices worried about ongoing consumer pain. Brent crude futures hit a two-month high of $122.43 a barrel after the European Union vowed to cut Russian oil imports by the end of the year.

US Treasuries slumped after Monday’s US holiday yield, pushing the 10-year bond yield up nearly 10 basis points (bps) to 2.8405%.

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German Bund yields rose 8.1 bps overnight after German consumer prices rose at their fastest pace in half a century, bolstering arguments for an excessive rate hike by the European Central Bank in July. read more

Euro-zone inflation data is expected later on Tuesday.

China’s Purchasing Managers’ Index (PMI) figures showed another month of contraction in services and manufacturing activity, albeit at a slower rate of decline.

In stocks, S&P 500 futures gave up early gains to fall back to flat early in the Asian session, and Nasdaq 100 futures rose 0.4%. MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) ran on a two-day winning streak, falling 0.2%. The Japanese Nikkei (.N225) fell 0.1%.

“The focus is really on the US economy and China now,” said Khoon Goh, head of Asia research at ANZ Bank in Singapore.

“The world’s two largest economies are slowing, for various reasons, and it’s not great for the global growth trajectory.”

Factory output in the third-largest economy, Japan, also fell sharply in April as Chinese demand eased, data from Tuesday showed. read more

May data showed China’s official PMI at 49.6, indicating a contraction in factory activity, but at a slower pace than in April, when the figure was 47.4. read more

Growth concerns have put the brakes on a two-week rally for global exporters’ currencies and have stabilized the US dollar as investors return to safety.

Hawkish comments from US Federal Reserve Governor Christopher Waller also reversed recent expectations that the Fed could pause after the June and July surges. read more

“I’m advocating putting 50 (bp increases) on the table every meeting until we see a substantial cut in inflation. Until we have that, I don’t see the point in stopping,” Waller said.

Fed Fund futures fell sharply, especially contracts for the early months of next year, as investors braced for relentless rate hikes that would push the benchmark toward 3% by mid-2023.

The dollar traded at $1.0744 per euro on Tuesday, up 0.3%, and 128.16 yen, up about 0.4%.

The trade-sensitive Australian and New Zealand dollars fell, with the Aussie falling 0.2% to $0.7180 and the kiwi 0.4% to $0.6530.

Oil prices rose after the European Union agreed to cut oil imports from Russia at the end of 2022. read more

US crude oil futures rose to $117.70 a barrel.

The stronger dollar pushed spot gold a fraction lower to $1,848 an ounce. Bitcoin surged overnight, jumping nearly 8% and reaching $32,000 for the first time in three weeks. It sat just below that at $31,540 early in the Asian session.

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Reporting by Tom Westbrook; Editing by Bradley Perrett

Our Standards: The Thomson Reuters Trust Principles.

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