Stocks and bonds retreated Monday as investors focused on inflation and the impact of policy tightening by central banks.

All major groups in the S&P 500 fell, while the tech-heavy Nasdaq 100 lost more than 2 per cent. Ten-year Treasury yields climbed through 2.75 per cent for the first time since March 2019 after the Federal Reserve last week signaled sharp rate hikes and balance-sheet reduction to curb price pressures. Oil sank as China’s largest coronavirus outbreak in two years heightens concerns about demand. Bitcoin traded near US$40,000.

Market sentiment continues to be shaped by a hawkish Fed, commodity disruptions caused by Russia’s invasion of Ukraine and the prospect of an economic slowdown. China’s COVID-19 outbreak continues to spread despite an extended lockdown of Shanghai’s 25 million people, with the restrictions straining global supply chains. Investors are awaiting earnings reports this month to restore confidence in the outlook for equities.

“Inflation, monetary policy jitters, Shanghai shutdown, and Russian invasion of Ukraine hold markets hostage,” wrote John Stoltzfus, chief investment strategist at Oppenheimer. “Markets remain prone to rotation and rebalancing for now as multiplicities of uncertain outcomes cause volatility and no shortage of pondering and projection.”

Charles Evans, the Fed Bank of Chicago president who has long been one of the more dovish U.S. policy makers, said an accelerated pace of rate hikes to combat inflation is worth debating. The central bank is doing all it can to avoid “collateral damage” from raising interest rates, a “brute-force tool” that can act as a “hammer” on the economy, Governor Christopher Waller said.

The credit derivatives market ruled Russian Railways JSC to be in default after missing an interest payment last month. Russia said it would halt bond sales for the rest of the year and take legal action if sanctions force it into a sovereign default.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.7 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 2.4 per cent
• The Dow Jones Industrial Average fell 1.2 per cent
• The MSCI World index fell 1.3 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.1 per cent
• The euro was little changed at US$1.0884
• The British pound was little changed at US$1.3023
• The Japanese yen fell 0.9 per cent to 125.41 per dollar

Bonds

• The yield on 10-year Treasuries advanced seven basis points to 2.77 per cent
• Germany’s 10-year yield advanced 11 basis points to 0.82 per cent
• Britain’s 10-year yield advanced 10 basis points to 1.85 per cent

Commodities

• West Texas Intermediate crude fell 3.4 per cent to US$94.92 a barrel
• Gold futures rose 0.6 per cent to US$1,957.70 an ounce