Stocks closed down as a surge in oil above US$100 a barrel reignited inflation worries, while big banks dropped ahead of the start of the financial earnings season on Wednesday.

The S&P 500 erased gains that were earlier driven by speculation that price pressures could be near a peak. JPMorgan Chase & Co. will be the first among the top six banks to report results, with Wall Street focused on how volatility triggered by the war in Ukraine affected investment-banking and trading operations. Treasury 10-year yields slumped after touching the highest since December 2018. Oil topped US$100 a barrel.

The jump in crude alongside other commodities has fanned inflation fears, which could put pressure on the Federal Reserve to raise interest rates more aggressively. Gasoline costs drove half of the monthly increase in the U.S. consumer-price index in March. Still, core inflation increased less than forecast, due in large part to the biggest drop in used-vehicle prices since 1969 and a deceleration in price growth in other merchandise categories.

Comments:

• “The persistent inflationary pressures may continue to weigh on investor sentiment,” said John Lynch, chief investment officer at Comerica Wealth Management. “First-quarter earnings calls will be important to get an understanding of input costs, pricing power and margin pressures.”
• “Inflation is noise for the long-term stock investor,” said Sylvia Jablonski, chief investment officer for Defiance ETFs. “If you’re a short-term trader, sort of proceed with caution because you do have these short-term volatile price-action swings. I am most interested in seeing what earnings will look like.”
• “While today’s inflation print hit a four-decade high, there was a sigh of relief as some components of core inflation weakened,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “Regarding peak inflation, we have been at this juncture before where subtle shifts within the data make it appear that the level of inflation has reached its peak for the cycle only to keep marching higher.”

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

Events to watch this week:

• Bank of Canada rate decision, Wednesday
• EIA crude oil inventory report, Wednesday
• Reserve Bank of New Zealand rate decision, Wednesday
• China trade, medium-term lending facilities, Wednesday
• ECB rate decision, Thursday
• Bank of Korea policy decision, Thursday
• U.S. retail sales, initial jobless claims, business inventories, University of Michigan consumer sentiment, Thursday
• Cleveland Fed President Loretta Mester, Philadelphia Fed President Patrick Harker due to speak Thursday
• U.S. stock and bond markets are among those closed for Good Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.4 per cent
• The Dow Jones Industrial Average fell 0.3 per cent
• The MSCI World index fell 0.5 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro fell 0.5 per cent to US$1.0830
• The British pound fell 0.2 per cent to US$1.3002
• The Japanese yen was little changed at 125.33 per dollar

Bonds

• The yield on 10-year Treasuries declined six basis points to 2.73 per cent
• Germany’s 10-year yield declined three basis points to 0.79 per cent
• Britain’s 10-year yield declined four basis points to 1.80 per cent

Commodities

• West Texas Intermediate crude rose 6.7 per cent to US$100.61 a barrel
• Gold futures rose 1.2 per cent to US$1,971.80 an ounce