Asia Stocks to Fall After Wall Street Tech Slump: Markets Wrap

(Bloomberg) — Asian stocks were poised to follow Wall Street shares lower after the latest evidence of stubborn US inflation spurred bets the Federal Reserve will be in no rush to cut rates.

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Futures showed benchmarks markets in Japan, Hong Kong and Australia will open down, after the S&P 500 erased earlier gains and fell more than 1% in a volatile session. The decline was led by rate-sensitive tech megacaps Microsoft Corp., Apple Inc. and Nvidia Corp. Bond yields jumped on hot retail sales data, while oil whipsawed on geopolitical angst.

Volatility perked up, with the premium for one-month put options to protect against a pullback in US equities hitting the highest since October. Wall Street’s “fear gauge” — the VIX — hit levels unseen this year. The S&P 500 broke below 5,100, dropping to the lowest in almost two months. The tech-heavy Nasdaq 100 slid over 1.5%. Both gauges breached their 50-day moving averages — seen as a bearish signal by several chartists. Banks outperformed on a surprise profit from Goldman Sachs Group Inc.

“Stocks began to violate uptrends and pull back,” said Craig Johnson at Piper Sandler. “Interest rates are expected to stay higher for longer. A more cautious and tactical approach is favored as earnings season gets underway.”

Treasury 10-year yields spiked nine basis points to 4.62%, while those on two-year notes came closer to 5%. Bonds were also under pressure as JPMorgan Chase & Co. and Wells Fargo & Co. tapped the US high-grade bond market, the first in a likely parade of bond sales from banks after results.

West Texas Intermediate reclaimed its $85 mark on Monday — after briefly falling below it — and edged higher early Tuesday in Asia. Gold continued to climb on fears of escalating tensions in the Middle East. Top Israeli military officials reiterated the country has no choice but to answer Iran’s weekend attack.

US retail sales rose by more than forecast in March and the prior month was revised higher, showcasing resilient consumer demand that keeps fueling a surprisingly strong economy. As long as a robust labor market supports household demand, there’s a risk that inflation will become entrenched.

“If the S&P 500 is going to avoid its first three-week losing streak since last September, investors will need to move past concerns that rate cuts will be delayed because of sticky inflation,” said Chris Larkin at E*Trade from Morgan Stanley. “In the near-term, that could come down to the tone set by the first full week of earnings season, but geopolitical tensions in the Middle East remain a wild card.”

In Asia, China signaled its caution toward monetary easing as currency depreciation pressures mount by withdrawing cash from the banking system for a second consecutive month. Authorities in the nation are facing an increasingly difficult task of managing economic risks and dealing with policy divergence from the US.

The strong tailwind in the US from easy financial conditions continues to boost inflation and growth, including consumer spending in March, said Torsten Slok at Apollo Global Management, who continues to bet the Fed will not cut interest rates in 2024.

“The markets have been buoyed by strong corporate profits and the elixir of lower rates, but it seems like those two things are increasingly at odds with each other, so we would exercise some caution in the near term,” said Chris Zaccarelli at Independent Advisor Alliance.

Expectations for monetary policy have been shifting toward a later start to Fed rate cuts, which officials have said requires a higher degree of confidence that inflation is on a sustainable path back toward their 2% target. Traders are no longer fully pricing in a rate cut before November.

“In our view it’s not about ‘higher for longer’ when it comes to the Fed’s rate regime rather, it’s a continuation of the ‘pause for now’ until inflation gives up its stickiness,” said John Stoltzfus at Oppenheimer Asset Management.

Corporate Highlights:

Two of Tesla Inc.’s top executives have left in the midst of the carmaker’s largest-ever round of job cuts, as slowing electric-vehicle demand leads the company to reduce its global headcount by more than 10%.
Lockheed Martin Corp. beat rival Northrop Grumman Corp. in a $17 billion contest to continue development and eventual production of the US’s next-generation missile interceptor warhead, according to two people familiar with the decision.
M&T Bank Corp. boosted its 2024 outlook for net interest income, a key source of revenue.
The union for American Airlines Group Inc. pilots warned members to be vigilant amid a “significant spike” in safety- and maintenance-related problems at the carrier.
Clearlake Capital Group LP has made a sweetened bid to acquire Blackbaud Inc., offering $80 a share about a year after its last approach was rebuffed by the cloud software provider.
Charles Schwab Corp.’s first-quarter net revenue topped estimates as the retail brokerage tries to put 2023’s turbulence behind it.

Key events this week:

China property prices, retail sales, industrial production, GDP, Tuesday
Germany ZEW survey expectations, Tuesday
US housing starts, industrial production, Tuesday
Morgan Stanley, Bank of America earnings, Tuesday.
Fed Vice Chair Philip Jefferson speaks, Tuesday
BOE Governor Andrew Bailey speaks, Tuesday
IMF publishes its latest world economic outlook, Tuesday
Eurozone CPI, Wednesday
Fed issues its Beige Book, Wednesday
Cleveland Fed President Loretta Mester speaks, Wednesday
Fed Governor Michelle Bowman speaks, Wednesday
BOE Governor Andrew Bailey speaks, Wednesday
Taiwan Semiconductor earnings, Thursday
US Conf. Board leading index, existing home sales, initial jobless claims, Thursday
Fed Governor Michelle Bowman speaks, Thursday
New York Fed President John Williams speaks, Thursday
Atlanta Fed President Raphael Bostic speaks, Thursday
BOE Deputy Governor Dave Ramsden and ECB Governing Council member Joachim Nagel speak, Friday
Chicago Fed President Austan Goolsbee speaks, Friday