Futures for the S&P 500 fell 2.2% on Monday. A drop of more than 1.3% at the close of trading on Monday will push the index into bear market territory, defined as a 20% loss from a recent high. Contracts for the tech Nasdaq-100, which entered the bear market in March, fell 2.8%. Dow Jones Industrial Average futures fell 2%. Markets have been volatile this year as investors assessed the risks of rising inflation and central bank plans for easing stimulus policies that kept economies – and markets – alive throughout the pandemic. This latest period of volatility followed Friday’s data showing that consumer prices in the US rose 8.6% year-on-year in May, the fastest such rise since 1981. The report forced many to restore expectations of higher interest rates than the Federal Reserve. “The very fact that it exceeded expectations has really drained investors’ nerves even more and shown how difficult it is to try to keep a lid on inflation,” said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown. “The concern is that inflation is getting too hot for central banks to handle it and they will have to give cold water to economies in the form of tighter policies.” The Fed will begin its last two-day policy meeting on Tuesday, and most investors believe the central bank will announce on Wednesday that it is raising its key interest rate by half a percentage point. However, expectations that the Fed will be forced to move even more aggressively this year rose after the report on inflation on Friday.
On Monday, futures bets showed investors had a 78% chance that the Fed would raise interest rates by 2.5 percentage points by the end of the year, according to the CME Group. That would equate to raising interest rates by half at every Fed meeting this year. On Friday, traders set the odds at 50%, according to the CME Group. “This is what you call a bear market where there is fear and it pushes people out of the market and empties portfolios and capitulates,” said Todd Morgan, president of Los Angeles-based Bel Air Investment Advisors. However, Mr Morgan said developments over the next month or two could help ease inflationary pressures, such as lower demand for gasoline after the summer and a slowdown in demand for housing due to rising mortgage rates. “China’s opening is also a big deal,” he said, as it would help ease supply chain restrictions. Data last week showed that Chinese exports to the rest of the world increased in May as Covid-19 restrictions eased, adding signs of economic recovery there. Where does inflation affect American household budgets the most? WSJ’s Jon Hilsenrath traces the roots of rising prices to find out why some sectors have grown so much more than others. Photo illustration: Laura Kammermann / WSJ Expectations for higher interest rates emerged in the bond market as yields continued to rise after reaching their highest level since November 2018. The yield on the 10-year US benchmark bond rose to 3.238% from 3.156% on Friday. Bond yields rise as prices fall. Cryptocurrencies fell further on Monday after interest rate fears caused discounts over the weekend. Bitcoin, the largest cryptocurrency, traded around $ 23,900, according to CoinDesk – down almost 13% from 24 hours earlier. Ethereum fell 15.9% from 24 hours earlier to $ 1,228. Overseas stock markets have been rocked by fears of tighter US policy and a possible slowdown in growth in the world’s largest economy. The continental Stoxx Europe 600 fell 2.1% while the British FTSE 100 index fell 1.9%. Delivery platforms were among the biggest losers in the European meeting. London-based Deliveroo plunged 13%, while Germany’s Delivery Hero fell 5.6%. “Their businesses are built on the consumer sentiment and appetite,” said Streeter of Hargreaves Lansdown. “If people feel the sting, they will go to the grocery store instead of getting food.” Stock indices in Asia fell, with Hong Kong’s Hang Seng, Japan’s Nikkei 225 and South Korea’s Kospi Composite down about 3% or more. In mainland China, the blue-chip CSI 300 index lost about 1.2%. In foreign exchange markets, the dollar rose against some of its bonds with the ICE Dollar Index rising 0.6% to 104.73. The possibility of an even bigger interest rate difference between the US and Japan pushed the yen further down on Monday. The Japanese currency fell to a new multi-decade low, weakening beyond $ 135 to trade at its lowest level since 1998. A weak yen usually boosts Japanese exporters’ profits, but shares of exporting companies, including electronics and machinery makers, fell on Monday amid worries that Fed rate hikes would cool the global economy. Shares of Toyota Motor Corp. closed 3.3% lower in Tokyo, while Sony Group Corp. fell 4.9%. “The concern is so great that any expectations for the benefits of a weak yen have been dashed,” said Masahiro Ichikawa, strategic analyst at Sumitomo Mitsui DS Asset Management.

Asian stocks fell on Monday, with Japan’s Nikkei 225, South Korea’s Kospi Composite and Hong Kong’s Hang Seng down 2.9 percent or more.

          Photo: Eugene Hoshiko / Associated Press

At present, the Bank of Japan is trying to keep interest rates low, increasing the downward pressure on the yen. The Bank of Japan on Monday made the largest daily purchase of a fixed rate Japanese government bond since July 2018 to maintain the 10-year benchmark yield at or below the bank’s 0.25% ceiling. —Quentin Webb and Megumi Fujikawa contributed to this article. Write to Chelsey Dulaney at [email protected] and Dave Sebastian at [email protected] Copyright © 2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8