Bloodbath: Futures, Yuan Tumble as 10Y Yields Soar On Global Stagflation Fears

It's a bloodbath.

With Bank of America conveniently reminding us over the weekend that markets never bottom on a Friday, and that Mondays tend to be the worst day of the week for markets...

... that's exactly what is playing out today as risk assets are puking across the globe, with S&P 500 futures crashing, the Chinese yuan tumbling amid a growing slowdown in China, and the US 10-year Treasury yield climbing as high as 3.2% as risk parity funds are getting monkeyhammered... again.

A slide in US stock futures set up Wall Street’s main indexes to extend weeks of declines on concerns of a recession amid monetary tightening and surging inflation. Contracts on the S&P 500 fell 2.1% as of 7:15 a.m. in New York, trading at session lows, as the MSCI gauge of world stocks extended its retreat from a November peak to 16% as a wave of risk aversion continues to sweep through global markets after Friday’s U.S. jobs data left little room for a change of course in the Fed’s rate-increase and quantitative-tightening plans. Sentiment took a further knock over the weekend as Chinese Premier Li Keqiang warned the nation’s employment situation had turned grave because of Covid restrictions. The greenback extended a two-year high, rising on Monday against all of its major peers. Oil declined more than 2.5% as concern over slowing demand in Asia outweighed a Group-of-Seven pledge to ban Russian oil. Most Treasuries fell, with the five-year rate briefly jumping to the highest since 2008.

Nasdaq 100 futures slipped 2.5%, putting the tech-heavy index on course to extend its six-week streak of declines, with major tech stocks again down in premarket trading after Apple and closed lower for six straight weeks as the Federal Reserve tightens policies to fight inflation amid a spate of disappointing earnings and weak forecasts. The tech sector also remains pressured by rising bond yields and concerns over an economic slowdown. Apple fell as much as 2.6% premarket, after closing down to record its longest declining streak since November 2018. Amazon was 2.7% lower premarket, after closing at its lowest level in more than 2 years. Microsoft -2.5%, Alphabet -2.7%, Meta Platforms -2.6%, Netflix -2.5% and Nvidia -3% premarket.

  • In other notable premarket moves, Rivian Automotive tumbled as much as 9.6% after a media report that Ford was selling 8 million shares in the electric-pickup maker at a discount.

  • Cryptocurrency-exposed shares decline as Bitcoin is falling toward levels last seen in July 2021, part of a wider retreat in digital tokens. Riot Blockchain (RIOT US) -6.1%, Marathon Digital (MARA US) -6.3%, MicroStrategy (MSTR US) -4.8%.
  • Uber (UBER US) shares down 4% in U.S. premarket trading as CEO Dara Khosrowshahi says company has made progress in terms of profitability but the goal posts have changed and now it’s about free cash flow and getting there fast, CNBC reports, citing an email to staff on May 8.
  • Faraday Future (FFIE US) shares rose 9.3% in premarket trading on Monday after the Special Committee completed its previously announced review.
  • Rivian (RIVN US) falls as much as 9.6% in U.S. premarket trading as a post-IPO lockup on the stock expires, while CNBC reported Ford and another investor are looking to sell shares in the electric-pickup maker at a discount..
  • Prestige Consumer Healthcare (PBH US) upgraded to outperform from perform at Oppenheimer, which says the over-the- counter medications maker looks attractively valued after a recent pullback in its shares and .
  • Zanite (ZNTE US) shares climb 13% in U.S. premarket after its shareholders approved the business combination with Embraer’s urban air mobility subsidiary.
  • Southwest Gas (SWX US) shares could be active management after activist investor Carl Icahn reached a deal with the utility owner at the weekend to oust its CEO and name up to four directors to its board.

The S&P 500 capped its fifth week of declines on Friday, its longest losing streak since June 2011, as initial optimism following the Federal Reserve’s meeting faded. Growth-linked and technology stocks continue to be under pressure with the yield on U.S. five-year Treasury notes hitting the highest level since September 2008 as investors fear higher yields will threaten future earnings growth.

Not helping matters is the continued surge in benchmark 10Y yields which rose to 3.20% this morning and are just a few basis points away from taking out their November 2018 highs of 3.24%.

The Nasdaq 100 Index is down 22% this year, one of the worst performers among global gauges, despite a brief relief rally last week as Fed Chair Jerome Powell quelled fears of a 75-basis point rate hike.

“Lots of Fed watchers, both professional and amateur, have opined that Powell is delusional because the only way to bring inflation down is to cause a recession,” Ed Yardeni, president of Yardeni Research Inc., wrote in a note. “Of course, this crowd remains very bearish on both bonds and stocks.”

Strict lockdowns in China to curb the coronavirus have also been weighing on investor appetite. Chinese Premier Li Keqiang warned over the weekend of a “complicated and grave” employment situation as Beijing and Shanghai tightened curbs in the country’s most important cities. Goldman Sachs Group Inc. strategists, including David Kostin, said the outlook for U.S. stocks isn’t particularly bright, even if an outright recession is avoided.

The short-term outlook for stocks “is still messy and there may be more downside as markets worry about a significant economic slowdown or ‘hard landing’ and aggressive interest-rate hikes,” Diana Mousina, senior economist at AMP Investments, wrote in a note.

In Europe, the Stoxx 600 fell 2.1% with with miners, travel and real estate the worst-performing sectors. 524 Stoxx 600 members were down, and just 59 up. Here are some of the biggest European movers today:

  • BBVA shares rise as much as 2.3% as Deutsche Bank upgrades the stock to buy from hold, noting that the Spanish lender’s performance remains robust in most units.
  • EuroAPI gains as much as 7.5% as JPMorgan initiates coverage with an overweight rating, calling the Sanofi spinoff  a “transformation story with significant upside”
  • Ideagen surges as much as 47% after the software company agrees to be acquired by funds managed by Hg Pooled Management for 350p/share in cash.
  • NCC Group shares rise as much as 1.6% to outperform a falling tech sector after the company says sales in 2H will be substantially higher than 1H.
  • Solutions 30 shares rise as much as 4.1% after BNP Paribas Exane resumes coverage with an outperform rating, citing new profitable growth cycle and a potential buyout.
  • Miners’ shares underperform the broader equity gauge in Europe as iron ore and copper decline after weak Chinese property data and a jobs warning from Premier Li Keqiang.
  • Rio Tinto falls as much as 4.5%, Anglo American -4.2%, Glencore -5.4%, ArcelorMittal -5%, SSAB -6%
  • Crypto-exposed shares decline as Bitcoin falls toward levels last seen in July 2021, part of a wider retreat in digital tokens
  • Argo Blockchain -12%, Safello -6.8%, Northern Data -9.4% and On-Line Blockchain -10%
  • Grifols falls as much as 9%, giving back all of Friday’s gains that were fueled by 1Q earnings from the Spanish maker of pharmaceutical products.
  • Rightmove drops as much as 7.2% after the company said its chief executive officer Peter Brooks-Johnson will step down in 2023.

In the latest Russia-related developments, the G7 most-industrialized countries pledged to ban the import of Russian oil. The European Union is working on a similar plan but Hungary remains a holdout and the bloc’s talks are set to continue.

Earlier in the session, Asian stocks headed for a sixth day of declines as investors shunned risk assets fretting over the economic fallout from China’s lockdowns, rising global inflation and higher U.S. interest rates. The MSCI Asia Pacific Index slid as much as 1.8% in a broad rout that saw all major country benchmarks in the red, led by Indonesia. Materials and industrials were the worst-performing index groups, while tech names like TSMC and Sony were among the biggest drags in terms of individual stocks. A stronger dollar added to woes for Asian investors, who have already seen rising input costs and supply chain disruptions eating into company profits. The MSCI Asia gauge is down more than 17% this year and at its lowest levels since July 2020. Traders are keenly awaiting the U.S. consumer inflation data due Wednesday, given its implications for the Federal Reserve’s policy. “We are not getting any reprieve” as markets are possibly pricing peak Fed hawkishness and uncertainty from China’s lockdowns and the Russia-Ukraine war, Stefanie Holtze-Jen, Asia-Pacific chief investment officer at Deutsche Bank International Private Bank. told Bloomberg Television. Indonesia’s equity benchmark plunged 4.4% as the market reopened after a week-long holiday. Japan’s Nikkei 225 lost more than 2.5% as Prime Minister Fumio Kishida joined other G-7 leaders to impose a ban on crude over the Kremlin’s invasion of Ukraine. Chinese stocks edged lower -- though faring better than the Asian benchmark index -- after Premier Li Keqiang warned of a grave employment situation over the weekend amid shutdowns in Beijing and Shanghai. Hong Kong was closed for a holiday, as was the Philippines where a presidential election is under way.

In rates, the Treasuries curve continued to aggressively steepen with front-end yields richer on the day while long-end cheapens by up to 7bp and global stocks falling after Chinese Premier Li’s jobs warning. Treasuries curve steeper with 2s10s, 5s30s spreads wider by ~10bp and ~6bp on the day; on outright basis 2-year yields are richer by 4bp while 10s are at 3.18%, cheaper by 5.5bp but outperforming gilts ~by 2.5bp U.S. session has few scheduled events, although this week’s Treasury auctions and expected busy issuance slate could keep yields moving higher. Dollar issuance slate empty; some desks are expecting a busy week with as much as $40b in new deals coming if market conditions allow. Three-month dollar Libor -0.33bp at 1.39857%.

In FX, the big mover was the China yuan, whose selloff accelerated after breaking 6.7 per dollar for the first time since 2020, as Chinese exports grew at their slowest pace in nearly two years and amid the absence of support from state banks. The USDCNY rose as much as 1% to 6.7321, the highest since November 2020; USD/CNH jumps 0.9% to 6.7763.

Export growth in April slowed to 3.9% in dollar terms from a year earlier, compared to an increase in March of 14.7%. That’s the weakest pace since June 2020 but faster than the median estimate of a 2.7% gain in a Bloomberg survey of economists
Despite demand from some exporters, it was not enough to stop yuan from weakening, according to three traders who requested anonymity discussing confidential matters. The lack of notable dollar selling from state-owned banks also weighs on sentiment, they added.

Elsewhere in FX, Australia’s currency fell below 70 U.S. cents for the first time since January, and India’s rupee hit a record low against the dollar, with the central bank said to be intervening to defend the currency. The dollar rose against all of its Group-of-10 peers, with the Bloomberg Dollar Spot Index trading at its highest level in two years. China’s export growth in April in dollar terms slowed to 3.9% from a year earlier, compared to an increase in March of 14.7%, customs data showed Monday. That’s the weakest pace since June 2020 but faster than the median estimate of a 2.7% gain in a Bloomberg survey of economists. The Japanese yen fell to a fresh 20-year low against the dollar; USD/JPY rose as much as 0.6% to 131.35.

Bitcoin came under noted pressure over the weekend and has continued to decline during the European session, dropping to a low just above the USD 33k mark.

In commodities, oil fell, surrendering half of last week’s gains. Crude is being buffeted by the demand hit from China’s outbreak and supply risks linked to Russia’s war in Ukraine. WTI trades within Friday’s range, falling 1.1% to around $108. Spot gold falls roughly $18 to trade above $1,865/oz. Most base metals are in the red with much of the complex down over 2% on LME.

Looking at today's calendar we get US March wholesale trade sales. Simon property group, BioNTech, Infineon, Palantir, AMC are among the companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 1.4% to 4,061.75
  • MXAP down 1.7% to 161.32
  • MXAPJ down 1.4% to 529.60
  • Nikkei down 2.5% to 26,319.34
  • Topix down 2.0% to 1,878.39
  • Hang Seng Index down 3.8% to 20,001.96
  • Shanghai Composite little changed at 3,004.14
  • Sensex down 0.8% to 54,395.62
  • Australia S&P/ASX 200 down 1.2% to 7,120.65
  • Kospi down 1.3% to 2,610.81
  • STOXX Europe 600 down 1.3% to 424.33
  • German 10Y yield little changed at 1.14%
  • Euro down 0.4% to $1.0512
  • Brent Futures down 0.8% to $111.50/bbl
  • Gold spot down 0.8% to $1,869.61
  • U.S. Dollar Index up 0.35% to 104.03

Top Overnight News from Bloomberg

  • Russian President Vladimir Putin justified his faltering 10-week- old invasion of Ukraine as a battle comparable to the fight against Nazi Germany
  • Leaders of the Group of Seven most industrialized countries pledged to ban the import of Russian oil in response to President Vladimir Putin’s war in Ukraine
  • Hungary continued to block a European Union proposal that would ban Russian oil imports, holding up the bloc’s entire package of sanctions meant to target President Vladimir Putin over his war in Ukraine, according to people familiar with the talks
  • Saudi Arabia cut oil prices for buyers in Asia as coronavirus lockdowns in China weigh on demand, countering uncertainty around Russia’s supplies as the Ukraine war drags on
  • Chinese Premier Li Keqiang warned of a “complicated and grave” employment situation as Beijing and Shanghai tightened curbs on residents in a bid to contain Covid outbreaks in the country’s most important cities
  • Bill Gates said interest rates are likely to rise enough to cause a global economic slowdown, triggered by Russia’s invasion of Ukraine and fallout from the Covid-19 pandemic
  • The European Central Bank should start raising borrowing costs in July to prevent inflation expectations becoming de- anchored, said Governing Council member Olli Rehn.

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks declined amid recent upside in yields and as participants digested a slowdown in Chinese trade data. ASX 200 was dragged lower amid underperformance in the real estate and tech sectors. Nikkei 225 underperformed with a weaker currency and higher than expected wages doing little to offset the losses. Shanghai Comp was indecisive with initial pressure seen after reports of tighter COVID controls in China’s two largest cities and as Hong Kong remained closed for holiday, while the latest Chinese trade data was mostly better than expected but showed a significant slowdown in Exports amid the ongoing COVID-19 woes and curbs.

Top Asian News

  • China’s Imports From Russia Hit Record on Energy Price Rises
  • BP to Buy Stake in $36 Billion Hydrogen Hub, Australian Says
  • Miners Fall With Iron Ore and Metals on China Property Fears
  • Thailand Sees Foreign Arrivals Jumping to 1m a Month

European bourses are lower across the board, Euro Stoxx 50 -1.4%, in a continuation of the APAC handover amid multiple fundamental narratives. Stateside, US futures are similarly hindered, ES -1.7%, with the NQ marginally lagging given yield upside; Fed speak remains in focus and inflation metrics are due for the region and China later in the week. European sectors feature Tech underperforming given yields and following Infineon earnings in-spite of them raising guidance again, defensive names are the relative outperformers.

Top European News

  • European Gas Drops as Russia Tries to Calm Clients Over Payments
  • BBVA Gains as Deutsche Bank Upgrades on Robust Performance
  • Siemens Breakup Would Reap $60 Billion in Value: Bernstein
  • Cost of Default Hedges in Europe Tops Level Last Seen in 2020


  • Buck continues bull run on combination of risk, further upside in Treasury yields and curve steepening plus other positive factors. DXY extends beyond 104.000 to test or take out multiple technical, key and psychological levels.
  • Aussie and Kiwi underperform as high beta and commodity currencies, AUD/USD probes 0.7000 and NZD/USD hovers around 0.6350.
  • Franc and Yen suffering more adverse consequences of carry; USD/CHF approached 0.9950 and USD/JPY climbs to new YTD high of circa. 131.35.
  • Pound politically challenged after UK local elections and Sinn Fein success at Northern Ireland assembly, Cable under 1.2300 and closer to June 2020 base at 1.2252.
  • Euro soft awaiting further talks on Russian oil embargo and following worse than forecast Eurozone Sentix index, EUR/USD in low 1.0500 area and briefly under.
  • Loonie undermined by pullback in crude ahead of Canadian building permits, USD/CAD hits 1.2950 before paring back a bit.
  • Yuan slides after mixed Chinese trade data and tighter COVID restrictions in two largest cities, USD/CNY settles above 6.7200 and USD/CNH over chart resistance towards 6.7800.

Fixed income

  • Bonds whippy and multi-directional with Bunds holding above par within 151.37-150.75 range, but Gilts and 10 year T-note mostly softer between 117.64-14 and 117-27/11 parameters.
  • BTPs also weak awaiting mid-month Italian auction details.
  • UST curve steeper before Quarterly Refunding and CPI data.
  • UK debt eyeing a speech from one hawkish BoE dissenter as Saunders is scheduled later.


  • WTI and Brent are pressured amid broader risk sentiment though Russian President Putin's Victory Day speech was relatively uneventful.
  • Currently, the benchmarks are lower by around USD 2.00/bbl; familiar catalysts incl. China-COVID, EU Russian oil import embargo, remain in focus among other drivers.
  • Saudi Arabia lowered June Arab light oil prices to Asia to a premium of USD 4.40/bbl vs Oman/Dubai from a premium of USD 9.35/bbl, while it lowered the price to Europe to a premium of USD 2.10/bbl vs ICE brent from a premium of USD 4.60/bbl and kept the price premium to the US at USD 5.65/bbl vs ASCI, according to Reuters.
  • Saudi Energy Minister says the difference between crude prices and fuel mobility prices is around 60% due to refining capacity, via Reuters.
  • Russian Deputy PM Novak says Russian oil output was up in early May vs April; situation with Russian oil has stabilised, via Ria; considering expanding capacity of oil-exporting ports.
  • Spot gold is hindered amid USD and yield dynamics, moving further away from the 100DMA

DB's Jim Reid concludes the overnight wrap

Last week was another tough one for risk parity or 60/40 type strategies as equities and bonds fell around the world. The S&P 500 was actually one of the outperformers and 'only' fell -0.21% but this still made it the fifth successive weekly decline - the worse run since 2011. Meanwhile 10yr US yields were up +19.9bps, most of it after the Fed. The relatively small move in US equities masked huge volatility though and losses in both assets intensified as the dust settled after the "dovish" Fed where they effectively ruled out 75bps hikes in the foreseeable future. I spent some time over the weekend (whilst twiddling my thumbs at a 5 year old's birthday party) trying to work out whether markets would have been calmer or even worse had the Fed kept 75bps firmly on the table. How did I conclude this epic debate with myself? Well I ended up having no idea. Sticking to 50bps increments over the next couple of meetings provides a level of perceived control and shows no panic whilst 75bps suggests a level of panic but if inflation is as sticky as we expect it to be, it might ultimately be the best thing to do medium term. Regardless of this debate, it's fairly obvious that the "Fed Put" is going to be difficult to rely on for this cycle.

We won't have to wait too long for the next blockbuster event to help shape the debate as US CPI on Wednesday takes center stage this week with PPI the following day. There are lots of Fed speakers too to put some nuance to last week's FOMC announcement. Outside of this geopolitics will be key. Today marks the annual "Victory Day" in Russia where there will be a parade and a speech from Putin. It's anyone's guess what tone the President will take in this landmark speech but it could shape the next phase of the war. Staying with geopolitics, Finland may decide whether to apply for NATO membership this week and Sweden is due to publish its security policy assessment before Friday.

We will also get a pulse check on economic sentiment in May from the ZEW survey for the Eurozone and Germany (tomorrow) and, for the US, the University of Michigan survey on Friday. China inflation data on Wednesday will be interesting. In an otherwise quiet week for economic data, the UK will be an exception with a data-packed Thursday. It will be a slow week for corporate earnings too now as the bulk of US/European companies have reported and we will instead focus on Japan's corporate giants. As well as Fed speakers there are a number of ECB equivalents, with all comments pertaining to a possible July hike watched out for.

In terms of US CPI midweek, DB’s US economists are expecting a +7.9% reading, down from the four-decade-high 8.5% print in March, not least due to base effects. From here it should all be about the pace of the declines as things like the extreme YoY prices in used cars roll out of the data. However on the other side it is important to see how prolonged the rise in rents are. Remember that rents make up a third of the CPI basket and 40% of core. Used cars only make up a few percentage points. A reminder that the day by day calendar of events is at the end as usual.

Just a few words on earnings with around 90% and 75% having reported in the US and Europe. According to our equity strategist Binky Chadha (report link here), the season has been pretty strong, especially in Europe which benefits from a better sector mix (eg Energy and Materials concentration and limited Tech which held the US back). One consistent theme in both regions is that margins remained strong suggesting that firms are for now still able to pass on inflationary pressures. On the macro front this makes it harder for the rate of inflation to fall sharply as price rises are being embedded into the economies for now. It won't last forever as excess savings/liquidity will be run down but seems to be holding for now.

Asian stock markets opened sharply lower this morning following the broadly negative cues from Wall Street on Friday along with the ongoing impact of China’s Covid lockdown policies. The Nikkei (-2.08%) is leading losses across the region with the Kospi (-0.96%) also trading in negative territory. Mainland Chinese stocks are showing a mixed performance with the Shanghai Composite (+0.08%) marginally higher while the CSI (-0.65%) is moving lower after the release of China’s trade data. China’s exports grew +3.9% y/y in April, exceeding market estimates of a +2.7% increase but slowing from a +14.7% growth recorded in the preceding month. Meanwhile, the nation’s trade surplus increased less than expected to +$51.12bn in April (v/s +$53.45bn Bloomberg estimates). It followed a surplus of +$47.38bn in March. Elsewhere, markets in Hong Kong are closed today for a holiday. Outside of Asia, equity futures in the US point to further losses with contracts on the S&P 500 (-0.97%) and NASDAQ 100 (-0.79%) in the red. 10-yr USTs are around +1bps higher at 3.136% as I type with the 2s10s +2bps higher and above +40bps again.

In other economic news, real wages in Japan shrank -0.2% y/y in March, its first decline since December but compared to market estimates of a -0.6% drop. Meanwhile, the nominal cash earnings increased +1.2% y/y in March as against the same rate in February and compared to market expectations of a +0.9% gain.

Overnight, G7 nations committed to ban or phase out imports of Russian oil with the US unveiling sanctions against Gazprombank executives and other businesses as part of a new package of sanctions designed to further punish Moscow for its war in Ukraine.

A quick rewind to last week now. A few major central bank decisions injected yet more cross-asset volatility into markets. First, the Fed hiked rates by +50bps for the first time in two decades, announced the beginning of its balance sheet rundown, and seemingly ruled out hikes of larger magnitude in the near-term. Then, the BoE hiked Bank Rate by +25bps, coupled with 3 dissenting opinions who favoured a larger hike, and 2 members who wanted to signal no more hikes were forthcoming. They’re also starting to consider gilt sales, and released a forecast that show UK growth tipping negative next year. Adding the to mix, the RBA hiked their policy benchmark +25bps as well.

All told, 10yr Treasuries gained +17.9bps (+2.1bps Friday) concentrated all in real yields which climbed +27.7bps (+5.3bps) as the market appeared to start coming around to our view that the Fed has much more tightening to do. 10yr bunds were +17.3bps (+6.4bps Friday) higher, while Gilts picked up +6.5bps (+0.7bps Friday). Italian spreads widened all week to bunds, with 10yr BTPs increasing +36.2bps (+9.7bps Friday), to reach a spread of 200bps over bunds, their widest since June 2020. Money markets closed the week pricing year-end policy rates of 2.83% for the Fed, 0.33% for the ECB, and 2.16% for the UK. That marked a decline in the UK, so the 2s10s gilts curve climbed +14.7bps (+4.5bps Friday). Not to be outdone, the 2s10s Treasury curve also steepened with the aggressive back end sell off, climbing +17.7bps (+3.2bps Friday).

The S&P 500 managed its fifth weekly loss in a row for the first time since 2011, falling -0.21% (-0.57% Friday), after a particularly wild ride following the FOMC. Tech and mega cap shares fared even worse given the selloff in duration, with the Nasdaq falling -1.54% (-1.40% Friday) and the FANG+ down -2.21% (-2.02% Friday). The Vix closed the week above 30 at 30.19 given the renewed volatility. European shares fared worse (partly catch up to a weak US close the previous week), as the Stoxx 600 fell -4.55% over the week (-1.91% Friday), with the DAX moving -2.73% (-1.36% Friday) lower, and the CAC falling -4.06% (-1.57% Friday).

EU President Von der Leyen’s proposed gradual ban of Russian oil imports drove brent futures +3.55% higher over the week (+1.34% Friday) to $112.39/bbl. This morning, oil prices maintained their upward trajectory with Brent futures +0.16% higher as I go to press.

Finally, on data Friday, the American economy added +428k jobs to nonfarm payrolls in April, a little ahead of consensus forecasts, while the unemployment rate remained stable at +3.6%. Average hourly earnings decelerated slightly to +0.3% on a month-over-month basis.

Tyler Durden