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Stocks Drop, Dollar Up on Inflation, China Risks: Markets Wrap

(Bloomberg) — A selloff in stocks continued in Asia on Tuesday and the dollar strengthened amid caution about elevated inflation fueled by commodity prices and risks from the debt woes in China’s property sector.

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MSCI Inc.’s Asia-Pacific share index tumbled as much as 1.7% before paring some losses. The energy sector was among the few to rise on a rally in crude oil. Japan’s Nikkei 225 and South Korea’s Kospi extended losses from their recent peaks to 10%, putting them on track for technical corrections. U.S. and European futures were steady after technology shares led a Wall Street slump.

Oil held near the highest since 2014 following OPEC ’s decision to maintain a gradual supply hike even as a natural-gas crisis boosts crude demand. The Bloomberg Commodity Spot Index hit an all-time peak. Treasury yields rose.

China’s indebted property sector continues to vex traders. Fantasia Holdings Group Co. failed to repay a dollar bond due Monday, adding to the strains caused by China Evergrande Group’s cash crunch. The nation’s high-yield dollar bonds slumped. China’s stock market is closed for a holiday and will reopen Friday.

Global stocks have dropped almost 6% from a record in early September, hurt by a looming reduction in Federal Reserve stimulus, spiraling energy costs and the possibility of slower growth in China due to Beijing’s property-sector curbs. U.S lawmakers are also continuing their brinkmanship over the nation’s debt ceiling, with President Joe Biden warning that the government is at risk of breaching the legal limit this month.

“We think there is going to be more volatility in these markets,” Emily Weis, State Street macro strategist, said on Bloomberg Television. “It’s not going to be the same sort of ‘risk-assets-always-go-up-over-time’ story that maybe happened in the rebound from Covid.”

In the latest Fed comments, St. Louis President James Bullard said elevated price pressures may be changing the mentality of businesses and consumers by making them more accustomed to higher inflation. Australia’s central bank kept its monetary settings unchanged.

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Elsewhere, Bitcoin was around $49,000, making a push back toward $50,000 for the first time since El Salvador’s troubled rollout of the largest cryptocurrency as legal tender at the start of September.

For more market analysis, read our MLIV blog.

Here are some events to watch this week:

  • Rate decision in New Zealand on Wednesday

  • Reserve Bank of India monetary policy decision on Friday

  • The U.S. Labor Department releases unemployment and job creation data Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures slipped 0.2% as of 7:15 a.m. in London. The S&P 500 fell 1.3%

  • Nasdaq 100 futures were flat. The Nasdaq 100 fell 2.2%

  • Japan’s Topix index shed 1.3%

  • Australia’s S&P/ASX 200 Index lost 0.4%

  • South Korea’s Kospi index fell 2%

  • Hong Kong’s Hang Seng Index shed 0.1%

  • Euro Stoxx 50 futures were steady

Currencies

  • The Japanese yen was at 111.12 per dollar, down 0.2%

  • The offshore yuan was at 6.4549 per dollar

  • The Bloomberg Dollar Spot Index rose 0.3%

  • The euro was at $1.1595, down 0.2%

Bonds

  • The yield on 10-year U.S. Treasuries rose about one basis point to 1.49%

  • Australia’s 10-year bond yield rose three basis points to 1.52%

Commodities

  • West Texas Intermediate crude was at $77.64 a barrel

  • Gold was at $1,758.71 an ounce, down 0.6%

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