A man stands on an overpass with an electronic board showing the Shanghai and Shenzhen stock indices at Lujiazui financial district in Shanghai, China January 6, 2021. REUTERS/Aly Song//File Photo
- >Asian equity markets :
- S&P 500 futures flat, Chinese markets on vacation
- Talk of further sanctions against Russia, end of gas sales
- Treasury yield curve reverses into recession warning
- 2-year US yield close to 2.5% for first time since early 2019
SYDNEY, April 4 – Stock markets made cautious gains on Monday amid talk of further sanctions against Russia over its invasion of Ukraine, while bonds chanted the risk of a hard landing for the US economy as near-term yields tumbled three years reached heights.
A public holiday in China led to sluggish trading, and MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) rose 0.6%.
Japan’s Nikkei (.N225) was up 0.1%, while S&P 500 stock futures and Nasdaq futures were flat. EUROSTOXX 50 futures were up 0.2% and FTSE futures were up 0.4%.
As peace talks between Russia and Ukraine dragged on, reports of Russian atrocities led Germany to say the West would agree to impose more sanctions in the coming days. Continue reading
Germany’s defense minister also said the European Union must discuss an import ban on Russian gas, a move that would most likely drive up prices even further while forcing energy rationing in Europe. Continue reading
Last week’s data showed that inflation in the EU was already at a record high, putting pressure on the European Central Bank to rein in prices even as growth slows sharply.
“It really looks like it’s time for the ECB to act,” warned analysts at ANZ in a statement. “While the ECB will be cautious about raising rates, it certainly looks like it should act sooner to end its QE program.”
The US Federal Reserve has already hiked rates and is expected to do much more after Friday’s solid March payroll report. Several Fed officials are scheduled to speak at public events this week with the prospect of sending more hawkish signals, and minutes from the latest monetary policy meeting are due on Wednesday.
“We now expect the Fed to hike 50 basis points in May, June and July before slowing the pace somewhat by raising 25 basis points in September, November and December,” said Kevin Cummins, chief US economist at NatWest Markets.
“This will bring the overnight rate into the restrictive zone earlier, at 2.50-2.75% by year-end 2022.”
Investors responded by hammering on short-dated government bonds and continuing to invert the yield curve as the market priced in the risk that all of this tightening would eventually lead to a recession.
On Monday, two-year bond yields rose to a three-year high of 2.49% and well above the 10-year at 2.410%.
The rise in yields has supported the US dollar, particularly against the yen, as the Bank of Japan repeatedly traded last week to keep bond yields close to zero.
The dollar was trading firm at 122.60 yen, not far off a recent seven-year high of 125.10. The euro drifted to $1.1045 and could fall further if the EU does act to halt gas supplies from Russia, which is calling its actions in Ukraine a “special operation”.
The dollar index was last at 98.617 after recently moving between 97.681 and 99.377.
The global rise in bond yields weighed on non-yielding gold, and the metal remained stuck at $1,920 an ounce.
Meanwhile, oil prices took an early hit after the United Arab Emirates and the Iran-allied Houthi group welcomed a ceasefire that would halt military operations on the Saudi-Yemen border, easing some concerns about potential supply problems.
Oil slipped 13% last week – the biggest weekly drop in two years – after US President Joe Biden announced the biggest release of US oil reserves yet.
The price stabilized for the day and Brent rose 32 cents to $104.71 while US crude gained 22 cents to $99.49.
Editing by Kenneth Maxwell