Stocks finished lower Monday, while Treasury bond yields and the dollar continued to test multi-year highs, as investors shift focus from the ongoing war in Ukraine to a busy slate of earnings and data releases in a holiday-shortened trading week.
The Dow Jones Industrial Average finished down 413 points, or 1.19%, to 34,308, while the S&P 500, which is down 6% for the year, lost 1.69% and the tech-focused Nasdaq dropped 2.18%.
Inflation remains the key driver in terms of bond market performance Monday, and with crucial readings for both producer prices and consumers prices due this week, each of which are expected to accelerate to multi-decade highs, traders are pricing-in faster and deeper rate hikes from the Federal Reserve, which in turn is boosting day-to-day rates in the market for U.S. Treasuries.
With rents, used car prices and healthcare costs, which make up a massive portion of the underlying core CPE reading, continuing to rise, and energy and food prices holding onto to their recent multi-year increases -- boosting headline readings -- analysts are looking for a year-on-year inflation rate of 8.4% when the Commerce Department publishes its formal estimate at 8:30 am Eastern time on April 12.
The CME Group's FedWatch tool pegs a 79.4% chance of a 50 basis point rate hike from the Fed in May, followed by a 52.1% chance of a follow-on move in May and 23.3% chance of a third 50 basis point hike in July.
Benchmark 10-year Treasury note yields, meanwhile, touched 2.786% in overnight trading, the highest since January 2019, following data from China showing factory gate inflation surged 8.3% from last year in March, indicating the country's struggle to overcome its recent Covid surge will continue to affect global supply chains and the upward prices pressures that come with it.
Some relief on the energy front, however, was provided by sliding oil prices, which extended their Friday declines as investors prepare for the release of 240 million barrels of crude -- or more than a million barrels each day between now and the end of the year -- as part of coordinated plan between the U.S. and its allies to mitigate the impact of supply disruptions and sanctions on Russian energy exports.
China, the world's biggest energy importer, could also look to an extended lockdown of some of its biggest cities this week, including Shanghai, as part of its failed effort to enforce a 'zero Covid' policy as cases surge and hospitalizations begin to rise.
WTI crude futures for May delivery were marked $3.33 lower on the session at $94.93 per barrel while Brent contracts for June fell $3.73 to $99.05 per barrel.
The first quarter corporate reporting season also kicks-off in earnest this week, as well, with updates from the country's biggest banks that could set the tone for a notable decline in the pace of profit growth.
S&P 500 companies are expected to see collective profits grow 6.1% from last year to a share-weighted total of $432.2 billion, a pace that would be down sharply from the 32.1% clip recorded over the final three months of last year.
Twitter (TWTR) rose 1.7% after the social media group scrapped an agreement to bring Tesla (TSLA) CEO and billionaire investor Elon Musk onto its board of directors.
AT&T (T) shares surged 7.3% as investors adjusted for the completion of its $43 billon media merger with Discovery (DISCA) that will begin trading today.
Warner Bros Discovery Inc. began trading on the Nasdaq under the ticker symbol "WBD" Monday, with CEO David Zaslav CEO at the helm, following A&T's decision to spin-off its interest in WarnerMedia earlier this year. Shares ended up 1.4% to $24.78.
AT&T shareholders will own 71% of the combined group, with the remaining 29% taken-up by Discovery shareholders.
Tesla (TSLA), meanwhile, fell 4.8% after data showed car sales in China fell for the first time in three months as the country's 'zero Covid' policy shutters factories and limited consumer and business activity in the world's largest auto market.
