Stocks fall, bonds fall as German surprise renews inflation fears

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

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SINGAPORE (Reuters) – Stocks fluctuated and bonds tumbled in Asia, while the dollar rose on Tuesday after a sharp inflation reading in Germany added to nervousness about the pace and scope of impending interest rate hikes.

Rising energy prices have heightened concern that the consumer will continue to suffer. Brent crude futures touched a two-month high of $122.43 a barrel after the European Union pledged to cut Russian oil imports by the end of the year.

US Treasuries tumbled on return from Monday’s US holiday, sending the 10-year bond yield up 10 basis points to 2.8405%.

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German bond yields rose 8.1 basis points overnight after German consumer prices rose at their fastest pace in half a century, boosting the case for the European Central Bank’s massive rate hike in July. Read more

Eurozone inflation data is due later on Tuesday.

China PMI numbers showed another month of contraction in services and manufacturing activity, albeit at a lower pace.

In stocks, S&P 500 futures gave up early gains to retreat to flat early in the Asian session, and Nasdaq 100 futures rose 0.4%. MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It snapped a two-day winning streak and fell 0.2%. Japan’s Nikkei Index (.N225) It decreased 0.1%.

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

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

Data on Tuesday showed that factory production in Japan, the third-largest economy, also fell sharply in April as Chinese demand slumped. Read more

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

Growth fears capped a two-week rally in the world’s exporters’ currencies and the US dollar stabilized as investors once again turned to safety.

Also, hawkish comments by US Federal Reserve Governor Christopher Waller dampened recent expectations that the Fed might take a breather after the June and July rallies. Read more

“I’m for 50 basis points (a basis point increase) on the table at every meeting until we see deep reductions in inflation. Until we get that, I don’t see the point of stopping,” Waller said.

Fed fund futures are down sharply, especially contracts for the early months of next year, as investors brace for relentless rate hikes that will push the benchmark rate around 3% by mid-2023.

On Tuesday, the dollar was trading at $1.0744 per euro, up 0.3%, and 128.16 yen, up nearly 0.4%.

The trade-sensitive Australian and New Zealand dollars were down, with the Australian dollar down 0.2% to $0.7180 and the New Zealand dollar dropping 0.4% to $0.6530.

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

US crude futures rose to $117.70 a barrel.

The stronger dollar pushed the spot gold slightly lower to $1,848 an ounce. Bitcoin soared overnight, jumping nearly 8% and crossing $32,000 for the first time in three weeks. It sat a little lower at $31.540 early in the Asian session.

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Reporting by Tom Westbrook. Editing by Bradley Perrett

Our criteria: Thomson Reuters Trust Principles.