Sovereign bonds tumbled and US equity futures fell Monday as economic risks from inflation and tightening monetary policy hit sentiment.

The US 10-year Treasury yield climbed past 2.5%, above a technical trendline that has served as a ceiling since the late 1980s. Bonds slid in Australia and New Zealand, while Japan’s 10-year rate reached 0.25% even as the Bank of Japan announced two unlimited buying operations to keep them below that level – the top of its allowed range. The dollar jumped and the yen weakened.

A key part of the Treasury bond curve inverted for the first time since 2006, as the yield on the five-year note rose above the 30-year. The development suggests fixed-income investors anticipate an economic downturn and perhaps even a recession as the Federal Reserve hikes interest rates.

S&P 500 and Nasdaq 100 contracts dipped and those for Europe wavered as investors also monitored Russia’s war in Ukraine. Most Asian shares lost ground, with Chinese technology stocks one of the few bright spots. The overall picture suggested a pause in the equity rally from war-induced lows.

West Texas Intermediate slid below $ 110 a barrel as a Covid-linked lockdown in Shanghai stirred concerns that China’s virus surge imperils oil demand. Gold retreated, while Bitcoin pushed past $ 47,000 to turn positive for 2022.

The war continues to disrupt supplies of key commodities, stoking inflation risks that are contributing to expectations of more aggressive Fed tightening. Traders are pricing in two full percentage points of Fed rate rises over the rest of 2022. Mobility restrictions in China may fan worries about rising costs.

“What is happening with China, it adds to the concerns of – does this add to the supply-chain disruption?” Mary Nicola, a global multi-asset portfolio manager at PineBridge Investments, said on Bloomberg Television.

Electric-vehicle maker Tesla Inc. plans to suspend production at its Shanghai plant for at least one day, people familiar with the matter said. Tesla has not yet informed employees whether it will extend the suspension, they said.

Ukraine talks

In the latest geopolitical developments, Ukrainian and Russian negotiating teams are set to resume in-person talks this week. President Joe Biden tried to temper comments calling for the removal of Vladimir Putin by saying the US is not seeking regime change in Moscow.

Global shares have recovered from the lows sparked by Russia’s invasion, but questions remain about the durability of the equity market advance.

It may be that what we’re seeing is “more a bear-market rally,” Chris Weston, head of research with Pepperstone Financial Pty, wrote in a note. He added that investment flows related to portfolio rebalancing at the end of March and the first quarter could lead to “big and questionable moves.”

Some key events to watch this week:

  • President Joe Biden due to release his 2023 budget, Monday
  • Bank of England Governor Andrew Bailey to speak, Monday
  • Australia’s annual budget, Tuesday
  • Philadelphia Fed President Patrick Harker to speak, Tuesday
  • US GDP, Wednesday
  • Richmond Fed President Thomas Barkin to speak, Wednesday
  • China manufacturing, non-manufacturing PMIs, Thursday
  • OPEC and non-OPEC ministerial meeting to discuss production targets, Thursday
  • New York Fed President John Williams to speak, Thursday
  • US jobs report, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.5% as of 6:51 am in London. The S&P 500 rose 0.5% Friday
  • Nasdaq 100 futures fell 0.6%. The Nasdaq 100 fell 0.1% Friday
  • Japan’s Topix index shed 0.4%
  • South Korea’s Kospi index was slightly changed
  • Australia’s S & P / ASX 200 index rose 0.1%
  • Hong Kong’s Hang Seng index increased 1%
  • China’s Shanghai Composite index slipped 0.2%
  • Euro Stoxx 50 futures climbed 0.1%

Currencies

  • The Japanese yen was at 123.21 per dollar, down 1%
  • The offshore yuan was at 6.3920 per dollar, down 0.1%
  • The Bloomberg Dollar Spot Index rose 0.4%
  • The euro was at $ 1.0946

Bonds

  • The yield on 10-year Treasuries rose seven basis points to 2.54%
  • Australia’s 10-year yield rose 13 basis points to 2.90%

Commodities

  • West Texas Intermediate crude fell 3.8% to $ 109.53 a barrel
  • Gold was at $ 1 937.29 an ounce, down 1.1%

© 2022 Bloomberg



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