Treasuries Dip, Stocks Mixed as Oil Hovers at $100: Markets Wrap

(Bloomberg) -- Treasuries slipped and Asian stocks were mixed Wednesday as investors calibrated economic risks from inflation amid a jump in crude oil back to the $100 a barrel level.

Japan shares gained but Hong Kong and China fell. Signals from equity futures were muddy: S&P 500 and Nasdaq 100 contracts rose but Europe’s dipped.

The U.S. session Tuesday was shaped by inflation data, which came in at 8.5% for the headline number -- the highest in four decades -- but was better-than-expected at the core level, which excludes volatile food and energy prices.

Treasuries trimmed an advance that was sparked by the core reading. While the latter prompted traders to pare back expectations on how aggressively the Federal Reserve will raise interest rates, cost pressures remain a big risk. A dollar gauge was steady.

The push higher in crude underlined inflation concerns. Oil advanced after Russian President Vladimir Putin vowed to continue the war in Ukraine and China partially eased Covid-related curbs. 

Investors are bracing for the latest earnings season as they evaluate the threat from inflation, amid concerns that rising commodity costs and more circumspect consumers will end up squeezing company profits.

“We’re hopeful that this is where it’s going to peak,” Ann Miletti, head of active equity at Allspring Global Investments, said on Bloomberg Television, referring to U.S. inflation. But she added that markets continue to face a wall of worry from rising rates to the impact of China’s Covid lockdowns.

Fed Governor Lael Brainard said the U.S. central bank will move “expeditiously” to raise interest rates to a level that neither stimulates nor slows the economy this year. She said a decision on paring the Fed balance sheet could come as soon as May, with reductions starting in June.

Richmond Fed President Thomas Barkin said interest rates should reach the neutral range as quickly as possible and can move above that should price pressures persist.

The “inflation report on balance validates expectations that the Fed will hike by 50 basis points in May,” Silvia Dall’Angelo, senior economist at Federated Hermes Ltd., wrote in a note. 

On the geopolitical front, Putin said peace talks with Ukraine are stalled and vowed to continue his “military operation” there even as he called the conflict “a tragedy.” Ukrainian President Volodymyr Zelenskiy again called for further European Union sanctions on Russia to include oil as well as all banks.

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