(Bloomberg) – Treasury bonds rallied and equities fell as investors hedged against the risk that economies would weaken if central banks went too far in their anti-inflationary zeal and rate-hiking campaigns.
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European bond yields plummeted as the Stoxx Europe 600 index extended its decline to a sixth day, its longest losing streak since October. The yield on Germany’s benchmark 10-year bond fell four basis points as data showed the business outlook deteriorated to its lowest level this year as Europe’s largest economy struggles to emerge from recession.
Fears are growing in stock markets that central banks, determined to contain inflation, will continue to hike interest rates and risk destroying fragile economies. Futures on the S&P 500 indexed lower after the index endured its worst week since March, while benchmark US Treasury yields fell four basis points.
“As central banks remain hawkish amid ongoing inflationary pressures, the likelihood of a soft landing is diminishing,” said Andrew McCaffery, global chief investment officer at Fidelity International, in a statement released Monday. “Investors should consider lowering overall risk appetite.”
Markets have now weathered the biggest threat to President Vladimir Putin’s nearly quarter-century rise to power. A day after Yevgeny Prigozhin halted the advance of his Wagnerian mercenary group toward Moscow, Russian officials met key partners, including in China.
Oil prices surged as traders were aware of the risk that ongoing unrest in Russia could impact global oil markets. The country’s war in Ukraine has already upended trade flows as major consumers in Asia, including China, increase imports of Russian energy.
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“The events of this weekend make us realize that it is important to have geopolitical hedges in the portfolio, so we have always relied on commodities to fulfill that role,” said Trevor Greetham, Head of Multi Asset at Royal London Asset Management Ltd. in an interview with Bloomberg TV. “If there’s a sudden major military event, commodity prices can skyrocket, and you have that protection.”
Gas traders also braced for further market turmoil as European gas was already seeing its highest volatility since the invasion of Ukraine.
Shares in Russian aluminum producer United Co. Rusal International PJSC, which provide a glimpse of demand for the country’s assets through Hong Kong-traded securities, fell nearly 9%.
Important events this week:
US New Home Sales, Durables, Conference Board Consumer Confidence, Tuesday
ECB President Christine Lagarde addresses the ECB Forum in Sintra, Portugal on Tuesday
China industrial earnings, Wednesday
US Wholesale Inventories, Goods Trade Balance, Wednesday
The Federal Reserve is due to announce the results of its annual banking industry stress test on Wednesday
Policy panel with ECB’s Christine Lagarde, Fed Chair Jerome Powell, BOJ’s Kazuo Ueda and BOE’s Andrew Bailey at the ECB Forum in Sintra, Wednesday
Interest rate decision for Sweden, Thursday
US GDP, Initial Jobless Claims, Thursday
Atlanta Fed President Rafael Bostic addresses the US economic outlook at an event in Dublin on Thursday
China manufacturing PMI, non-manufacturing PMI, Friday
Eurozone CPI, Unemployment, Friday
Japan Unemployment, Industrial Production, CPI Tokyo, Friday
US Personal Income and Expenditure, Consumer Sentiment at University of Michigan, Friday
Some of the key movements in the markets:
Shares
The Stoxx Europe 600 was down 0.3% at 10:39am London time
S&P 500 futures fell 0.1%
Nasdaq 100 futures down 0.2%
Futures on the Dow Jones Industrial Average hardly changed
The MSCI Asia Pacific Index fell 0.2%
The MSCI Emerging Markets Index fell 0.3%
currencies
The Bloomberg Dollar Spot Index fell 0.1%
The euro was little changed at $1.0896
The Japanese yen rose 0.3% to 143.20 per dollar
The offshore yuan fell 0.3% to 7.2406 per dollar
The British pound rose 0.2% to $1.2737
cryptocurrencies
Bitcoin fell 0.2% to $30,335.88
Ether fell 0.3% to $1,888.01
Bind
The 10-year government bond yield fell four basis points to 3.69%
The 10-year German government bond yield fell four basis points to 2.31%
The 10-year UK government bond yield fell three basis points to 4.29%
raw materials
Brent crude rose 0.2% to $74.01 a barrel
Spot gold rose 0.4% to $1,929.80 an ounce
This story was created with the support of Bloomberg Automation.
– With the support of Allegra Catelli and Ksenia Galouchko.
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