Stocks fall, bonds fall as German surprise reignites inflation fears

A man wearing a protective mask walks past an electronic board showing a graph of the Nikkei index (top) during the coronavirus disease (COVID-19) outbreak, outside a brokerage firm in Tokyo, Japan, March 10, 2022.Reuters/Kim Kyung-hoon

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SINGAPORE, May 31 (Reuters) – Asian stocks wobbled and bonds fell, while the dollar rose on Tuesday after high inflation data from Germany added to concerns about the pace and scale of upcoming interest rate hikes.

Rising energy prices have added to concerns about continued pain for consumers. 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.

U.S. Treasuries tumbled as the U.S. holiday returned on Monday, with the 10-year bond yield up nearly 10 basis points (bps) to 2.8405%.

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German Bund yields rose 8.1 basis points overnight after German consumer prices rose at their fastest pace in half a century, strengthening the case for the European Central Bank to raise interest rates sharply in July.read more

Euro zone inflation data will be released later on Tuesday.

China’s Purchasing Managers’ Index (PMI) data showed another month of contraction in services and manufacturing activity, but at a slower pace.

In equities, S&P 500 futures pared early gains to flat in early Asian trade, while Nasdaq 100 futures rose 0.4%. MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) It ended a two-day winning streak, down 0.2%.Japan’s Nikkei (.N225) It 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 world’s two largest economies are slowing for different reasons, which is not good for the global growth trajectory.”

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

Data for May showed China’s official Purchasing Managers’ Index came in at 49.6, indicating that factory activity contracted, but at a slower pace than April’s 47.4.read more

Growth fears hampered a two-week winning streak in global export currencies and stabilized the dollar as investors turned to safety again.

Hawkish rhetoric from Fed Governor Christopher Waller also dampened recent expectations that the Fed may pause for respite after raising interest rates in June and July.read more

“I advocate for a 50 basis point hike at every meeting until we see a big drop in inflation. Until we get there, I don’t think there’s a point in stopping,” Waller said.

Fed funds futures fell sharply, especially for contracts in the first few months of next year, as investors braced for endless rate hikes that would take the benchmark rate to 3% by mid-2023.

The dollar was at $1.0744 against the euro on Tuesday, up 0.3%, and at $128.16 against the yen, up about 0.4%.

The trade-sensitive Australian and New Zealand dollars fell, with the Australian dollar last down 0.2% to $0.7180 and the New Zealand dollar down 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

U.S. crude futures rose to $117.70 a barrel.

A stronger dollar pushed spot gold down to $1,848 an ounce. Bitcoin surged overnight, rising nearly 8% to top $32,000 for the first time in three weeks. It was below $31,540 earlier in the Asian session.

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Reporting by Tom Westbrook; Editing by Bradley Perret

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