Stocks, futures retreat as Treasury yields steady

Stocks are set to start the week cautiously as investors brace for Treasury market volatility and assess the economic hit from the rapidly spreading Covid omicron variant.

Stocks in Europe retreated with U.S. futures Monday as investors brace for bond-market volatility and stimulus withdrawal.

Cyclical stocks in energy firms and banks tied to economic expansion were among the biggest gainers on the Stoxx Europe 600, offsetting declines in technology firms and real estate. Contracts on the Nasdaq 100 lagged those on the S&P 500.

Treasury yields steadied around 1.7 per cent following a global bond selloff last week that sparked a rotation out of high-growth equities and into cheaper cyclical stocks.

Markets face increasing volatility as investors grapple with how to reprice assets as the pandemic liquidity that helped drive equities to record highs is withdrawn. The latest U.S. consumer price index data due this week will be keenly watched as the U.S. Federal Reserve prepares to subdue price pressures with faster-than-expected rate increases.

“There is plenty of hawkishness yet to be priced in the asset prices, and that could cause a bit more selling across the markets this week, especially in growth stocks which should feel the pinch of higher interest rates compared with the value names,” said Ipek Ozkardeskaya, senior analyst at Swissquote.

The prospect of more aggressive U.S. Fed policy is unsettling markets as 2022 kicks off, with the Nasdaq 100 index losing 4.5 per cent in the first week as higher yields batter richly valued and hyper-growth stocks. By contrast value shares such as financials and energy firms are seen as winners of a higher rate regime.