German bund yields rose 8.1 bps after consumer prices increased at their fastest pace in half a century, strengthening the case for an outsized European Central Bank interest rate hike in July
Stocks wobbled and bonds fell in Asia, while the dollar rose on Tuesday after a hot inflation reading in Germany heightened nerves about the pace and scale of looming interest rate hikes.
Rising energy prices added to worry about the persistence of consumer pain. Brent crude futures touched a two-month top of $122.43 a barrel after the European Union vowed to slash imports of Russian oil by year’s end.
U.S. treasuries slumped on return from Monday’s U.S. holiday, sending the yield of the 10-year bond up nearly 10 basis points (bps) to 2.8405%.
German bund yields rose 8.1 bps overnight after German consumer prices increased at their fastest pace in half a century, strengthening the case for an outsized European Central Bank interest rate hike in July.
Eurozone inflation data is due later on Tuesday.
Chinese Purchasing Managers’ Index (PMI) figures showed another month of contraction in services and manufacturing activity, though at a reduced pace of decline.
In equities, S&P 500 futures gave up early gains to fall back to flat early in the Asian session, and Nasdaq 100 futures were up 0.4%. MSCI’s broadest index of Asia-Pacific shares outside Japan snapped a two-day winning streak and dropped 0.2%. Japan’s Nikkei fell 0.1%.
The focus now is really on the U.S. economy and China, said Khoon Goh, head of Asia research at ANZ Bank in Singapore.
The two largest economies in the world are slowing, for different reasons, and it’s not great for the global growth trajectory, Goh said.
Factory output in the third-largest economy, Japan, also dropped sharply in April as Chinese demand withered, data on Tuesday showed.
May figures 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.
Growth concerns have put the brakes on a two-week rally for exporters’ currencies globally and have steadied the U.S. dollar as investors have again leaned towards safety.
