Bonds Slide, US Equity Futures Dip; Crude Drops: Markets Wrap

(Bloomberg) – US equity futures dipped Monday, while Asian stocks looked set for a cautious start, as Russia’s war in Ukraine pushes into a second month and investors weigh the impact of tighter monetary policy to fight inflation.

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S&P 500 and Nasdaq 100 contracts edged lower and Japan’s pointed to a muted open. China’s Covid-linked lockdown in Shanghai may sap the mood when Hong Kong and the mainland begin trading. Australian shares made modest gains.

Sovereign yields jumped in Australia and New Zealand amid fears the Federal Reserve will lead an aggressive wave of interest-rate hikes in key economies. The US 10-year Treasury yield closed at almost 2.5% last week, past a technical trend line that effectively served as a ceiling since the late 1980s.

Crude oil retreated to about $ 111 a barrel. A dollar gauge fluctuated and the yen was around a six-year low against the greenback.

The war continues to disrupt the 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. That backdrop has the potential to inject further volatility across stocks, bonds and currencies.

“The Fed is trying to create a Goldilocks scenario by engineering a soft landing,” Saira Malik, chief investment officer at Nuveen, said on Bloomberg Television. “The equity markets are buying it and the bond markets aren’t.”

Malik said she expects only a moderate impact on global growth from the war, adding economic expansion will be strong enough to overcome inflation.

In-person talks between Ukrainian and Russian negotiating teams will resume this week, according to officials. US officials are in damage control after President Joe Biden said Vladimir Putin “can not remain in power.” Secretary of State Antony Blinken said the US does not have a regime of regime change.

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 of 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.”

In cryptocurrencies, Bitcoin scaled $ 46,000 following a recent rally that enabled the digital token to erase losses and turn positive for the year.

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 0.1% as of 8:37 am in Tokyo. The S&P 500 rose 0.5% Friday

  • Nasdaq 100 futures fell 0.1%. The Nasdaq 100 fell 0.1% Friday

  • Nikkei 225 futures rose 0.5%

  • Australia’s S & P / ASX 200 Index rose 0.2%

  • Hang Seng Index futures rose 1.3% earlier

Currencies

  • The Japanese yen was at 122.24 per dollar, down 0.2%

  • The offshore yuan was at 6.3897 per dollar

  • The Bloomberg Dollar Spot Index rose 0.1%

  • The euro was at $ 1.0983

Bonds

Commodities

  • West Texas Intermediate crude fell 2.8% to $ 110.68 a barrel

  • Gold was at $ 1,956.62 an ounce, down 0.1%

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