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Stocks fell last Friday and sovereign bonds struggled as the prospect of one of the most aggressive Federal Reserve monetary tightening cycles in recent history sowed more market discontent.

An Asian share gauge slid to a more than one-month low, sapped by Japan. European futures were in the red, while S&P 500 and Nasdaq 100 contracts wavered — but they were all off session lows.

US stocks shed 1,5 percent last Thursday.

China’s equity bourses eked out a gain amid economy-sapping Covid lockdowns. Its securities watchdog urged institutional investors to buy more domestic shares, part of a vow of market stability from Beijing that has so far failed to deliver a durable boost to sentiment.

Shorter maturities paced a retreat in Treasuries on the prospect of three consecutive half-point Fed interest-rate hikes, which would be the sharpest tightening since 1982. Fed Chair Jerome Powell signalled increases of such increments are possible and favoured the idea of “front-end loading” moves.

A portion of the Treasury yield curve inverted again. That may indicate worries about whether the Fed’s campaign against price pressures — which have been stoked in part by Russia’s war in Ukraine — will tip the world’s largest economy into a downturn. Bonds in Australia and New Zealand declined.

Central bankers are stepping up efforts to quell some of the highest inflation in a generation. That shift is sapping investor sentiment, stoking market volatility and eclipsing a robust start to the corporate earnings season.

“Equities are really torn between these two forces right now and the first one is that earnings are actually pretty good,” Anastasia Amoroso, chief investment strategist at iCapital Securities, said on Bloomberg Television. But “anytime equities rally it seems like the Fed officials are coming in with more and more hawkish talk,” she said.

About 80 percent of US firms reporting earnings so far beat estimates. Tesla Inc. was among them, gaining on record profits. Separately, Tesla chief executive officer Elon Musk is also lining up financing for his Twitter Inc. takeover bid.

Fed bets

Traders have ramped up bets on Fed hikes, but there could be further to go: Nomura Holdings now expects the Fed to raise rates by 75 basis points at both its June and July meetings, following a 50 basis point hike in May.

“The unknown is Powell’s ability to deliver the needed finesse without completely derailing the recovery, while not falling short of the required magnitude to anchor inflation,” Ian Lyngen, head of interest rate strategy at BMO Capital Markets, wrote in a note.

Elsewhere, the yen strengthened against the dollar on a report that Japanese Finance Minister Shunichi Suzuki and US Treasury Secretary Janet Yellen discussed the possibility of coordinated currency intervention.

Oil dipped toward US$102 a barrel. Energy costs are still elevated due to the supply challenges emanating from the Ukraine conflict, but on the flip side slowing US and Chinese growth could curb demand. – Bloomberg