Bonds Flash Growth Warning as Global Stocks Mixed: Markets Wrap

(Bloomberg) — Sovereign bonds tumbled, while European stocks gained and U.S. equity futures fell on Monday as economic risks from inflation and tightening monetary policy hit sentiment.

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The U.S. 10-year Treasury yield climbed past 2.5%, above a technical trendline that’s served as a ceiling since the late 1980s. Bonds slid from Australia to the U.K., while Japan’s 10-year rate extended gains even after the country’s central bank announced two unlimited buying operations to keep yields below the top of its allowed range. The dollar jumped and the yen weakened.

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

Europe’s Stoxx 600 advanced, while S&P 500 and Nasdaq 100 contracts dipped as investors also monitored Russia’s war in Ukraine. Most Asian shares lost ground. The overall picture suggested a pause in the equity rally from war-induced lows.

Oil fell as China’s worsening virus resurgence raised concerns about demand in the world’s biggest crude importer. Gold retreated, while Bitcoin turned 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.

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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 hasn’t 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 U.S. isn’t 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

• U.S. 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

• U.S. jobs report, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.5% as of 9:10 a.m. London time

• Futures on the S&P 500 fell 0.3%

• Futures on the Nasdaq 100 fell 0.4%

• Futures on the Dow Jones Industrial Average fell 0.2%

• The MSCI Asia Pacific Index fell 0.8%

• The MSCI Emerging Markets Index fell 1.1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.4%

• The euro fell 0.3% to $1.0950

• The Japanese yen fell 1.5% to 123.88 per dollar

• The offshore yuan was little changed at 6.3901 per dollar

• The British pound fell 0.3% to $1.3144

Bonds

• The yield on 10-year Treasuries advanced three basis points to 2.50%

• Germany’s 10-year yield advanced three basis points to 0.62%

• Britain’s 10-year yield advanced three basis points to 1.72%

Commodities

• Brent crude fell 3.8% to $116.09 a barrel

• Spot gold fell 1.3% to $1,933.75 an ounce

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