- Dow touches 52-week low; S&P 500 slides into bear market territory.
- Dollar index hits fresh 20-year high of 105.154 against a basket of six global currencies.
- Benchmark 10-year note yields hit 3.39%, while 2-year yields test 2007 highs at 2.337%.
- Bitcoin slumps below $23,000 to 18-month low, last seen trading at $23,200.50.
- WTI crude closes 37 lower at $120.00 per barrel.
- Traders betting on a 30% chance of a 75 basis point rate hike at Wednesday's Fed meeting.
U.S. stocks closed sharply lower Monday, capping the steepest three-day trading decline of the year, while Treasury bond yields surged to the point where short-term rates signaled recession fears, as investors bet on faster and deeper rate hikes from the Federal Reserve following last week's hotter-than-expected inflation data.
The S&P 500 dipped into so-called 'bear market' territory -- and the lowest since March of last year -- by the close of trading Monday, defined as a 20% decline from a recent all-time high, which the broadest measure of U.S. shares reached on January 4. The Dow, meanwhile, hit a fresh 52-week low of 30,373.72 points.
U.S. consumer prices rose by the fastest annual pace in more than four decades last month, the Commerce Department said, thanks in part to soaring energy and food prices. Core CPI, however, also marched higher on the surge in rent and used car components, putting paid to any suggestion that inflation dynamics are set to ease over the coming months.
The impact, in part, pulled the University of Michigan's benchmark reading of consumer sentiment to an all-time low, but also likely stiffened the Federal Reserve's resolve in terms of near-term rate hikes, although a quiet period ahead of the Wednesday policy meeting has prevented officials from making any public comments.
The CME Group's FedWatch tool, however, now suggests a 30% chance that the Fed will deliver a surprise 75 basis point rate hike later this week, up from just 3.1% a week ago
Both Fed Chairman Jerome Powell and a host of his colleagues have indicated their preference for a series of half-point increases over the coming months, but last week's faster-than-expected reading for May inflation has reignited bets for a 75 basis point move in July.
Should higher rates snuff out growth prospects in the world's biggest economy, which is already flirting with recession following a 1.4% first quarter contraction, stocks are in for another notable decline, according to analysts at Morgan Stanley, who suggest the S&P 500 could fall to as low as 3,400 points before the current downturn in exhausted.
"Sentiment has changed dramatically as market participants have realized that we have a galloping food crisis due to Russia’s tactics in Ukraine, China could very well move in and out of lockdowns for months causing global supply shocks, and a recession is now very likely as the only option to kill demand and inflation," said Saxo Bank strategists. "We remain negative and cautious on the US equity market and reiterating that commodities, logistics, cyber security, defence, and semiconductors are the best themes to be exposed to in 2022."
The overnight surge in government bond yields lifted 10-year German paper to the highest levels since 2014, while pushing European stocks sharply lower, with the region-wide Stoxx 600 marked 2.58% lower in early Frankfurt trading.
Overnight in Asia, the Nikkei 225 fell 3%, the most in four months, while the yen tumbled to a fresh 20-year low of 134.58 against the U.S. dollar. The region-wide MSCI ex-Japan index was marked 2.83% lower heading into the final hours of trading.
In the U.S., benchmark 10-year Treasury bond yields leaped to 3.39% while 2-year notes hit 3.331%, the highest since 2007, causing a brief inversion of the yield curve in overnight trading.
On Wall Street, the Dow Jones Industrial Average was marked 876 points lower, or 2.79%, by the close of trading while the S&P 500 fell 151 points, or 3.88%. The tech-focused Nasdaq lead declines with a 530 point, or 4.68%, plunge.
A big jump for the U.S. dollar in overnight trading, which took the greenback 1% to a fresh 20-year high of 105.222 against a basket of its global peers, put downward pressure on oil markets just as U.S. gas prices hit the highest levels on record.
According to data from the AAA, the national average price for a gallon of gas was pegged at $5.014 on Sunday, the highest nominal cost on record and a 63% from the same period last year, thanks to a combination of dwindling domestic supplies, surging summer demand and the impact of Russia's war on Ukraine on global crude markets.
WTI crude futures for July delivery closed 37 cents lower in New York trading at $120.00 per barrel.
White House economic adviser Cecelia Rouse told CNN Friday that the Biden Administration is looking to work with oil companies and reduce the current refining backlog, while reports suggest President Joe Biden is preparing to visit Saudi Arabia and meet with Crown Prince Mohammed bin Salman next month
The surging dollar also helped hammer cryptocurrency prices over the weekend, with Bitcoin falling back below the lowest levels since December of 2020.
Bitcoin prices were last seen 15.7% lower on the session at $23,380.59. The moves prompted cryptocurrency lender Celsius Network to freeze withdraws from its deposit base.
