Stocks, futures drop amid China, inflation concerns

Stocks and US equity futures decline as a jump in energy costs again highlights inflation concerns.

Stocks and U.S. equity futures declined Monday, while Treasury yields rose, as a jump in energy costs again highlighted the inflation concerns that are weighing on both the global economy and investor sentiment.

Japanese and Chinese shares dropped along with S&P 500 and Nasdaq 100 contracts. Treasuries fell on the prospect of rapid Federal Reserve monetary tightening to curb price pressures, pushing the 10-year yield to about 2.86%.

The cautious mood aided the dollar and gold. The yen fluctuated after Bank of Japan Governor Haruhiko Kuroda said its recent retreat was “very rapid.”

Natural gas and oil advanced, partly on risks from Russia’s war in Ukraine. These include the possibility of a de facto European Union embargo on Russian gas and the threat of some curbs on crude in the next European sanctions.

In China, economic data were mixed — while first-quarter gross domestic product growth accelerated, retail sales shrank in March for the first time since 2020. The latter hinted at ongoing damage from Covid lockdowns in the last few weeks. Officials cut the reserve requirement ratio Friday but refrained from lowering interest rates in a cautious approach to policy easing.

China’s Covid restrictions are snarling supply chains and stoking global inflation pressures. The latter were already exacerbated by disruptions to commodity flows due to the war and Russia’s isolation. Concern is growing that the U.S. economy faces a downturn as the Fed pivots toward aggressive policy tightening to contain the cost of living.

“Major regime change is rarely smooth in either geopolitics or economics, and markets are under-pricing these risks,” Eric Robertsen, chief strategist at Standard Chartered Bank Plc, wrote in a note. “We are increasingly concerned about a summer of turbulence and volatility.”

History suggests the Fed will face a difficult task in tightening policy to cool inflation without causing a U.S. recession, according to Goldman Sachs Group Inc. It put the odds of a contraction at about 35% over the next two years.

In Shanghai, officials reported the first deaths from a surging Covid-19 outbreak. The city has also published plans to resume production after a prolonged lockdown, recommending businesses adopt so-called closed-loop management, where workers live on-site and are tested regularly.

Markets in Australia, Hong Kong and much of Europe remain shut for Easter.