(Bloomberg) -- Bonds were mixed after reaching new heights as investors braced for the biggest rate hike from the Federal Reserve since 2000 and a wave of policy tightening by other central banks. U.S. equity index futures and European stocks fluctuated.
The U.S. 10-year yield held near 3% after hitting the milestone on Monday. Germany’s benchmark rate rose above 1% for the first time since 2015, before pulling back, while the corresponding yield on U.K. bonds climbed above 2% on Tuesday. Australian bonds slid after the nation’s central bank increased borrowing costs by more than many had expected.
Contracts on U.S. benchmarks were little changed and European shares struggled to hold onto earlier gains as investors shifted their attention to the monetary policy outlook. Bank stocks were mixed in premarket trading as German prosecutors raided the Frankfurt offices of Morgan Stanley and Pfizer Inc. wavered after reporting earnings.
Markets are getting whipsawed between concerns around persistent inflationary spirals and risks to global growth from rising yields, China’s Covid lockdowns and Russia’s war in Ukraine. The Fed’s plans to raise rates and reduce its balance sheet have ended an era of cheap money and forced money managers to reassess valuations.
“The right strategy right now is to position for inflation -- a clear and present fact -- rather than recession, which is still only a possibility,” Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, wrote in a note.
In Australia, the three-year yield topped 3% for the first time since 2014 after the Reserve Bank increased interest rates by more than economists anticipated and signaled further hikes to come.
Next up is the Federal Reserve on Wednesday. The U.K. is expected to raise borrowing costs a day later.
European stocks rose slightly after Monday’s flash crash, which had sent shares across the continent tumbling after a sudden 8% decline in Swedish stocks. Citigroup Inc. said its London trading desk was behind the anomalous move.
BP Plc shares climbed after the oil major boosted its share buyback by $2.5 billion as cash flow surged. BNP Paribas SA jumped after reporting gains in both equities and fixed-income trading. Real estate stocks underperformed as the troubles at Adler Group SA explode into a full-blown crisis.
Asian equities were whipsawed by big swings in Alibaba Group Holding Ltd. in Hong Kong on concerns about the status of co-founder Jack Ma. HSBC Holdings Plc shares in Hong Kong rose after it emerged late Friday that the bank’s largest active investor would support a breakup of the lender on the basis that a separate Asia-listed unit would create shareholder value.
A gauge of the dollar eased off a two-year high, while euro and the pound rose. The Bank of England this week is expected to raise interest rates to a 13-year high and clarify plans for selling its government-bond holdings. Markets are wagering on almost four 25-basis-point hikes by the European Central Bank this year.
Crude oil slipped as traders weighed demand for refined products against challenges from the virus-induced slowdown in China.
Meanwhile, Russia’s closely watched dollar payments on two bonds are trickling through to investors after the country dipped into its local holdings of the U.S. currency and sidestepped its first foreign default in a century.
Pope Francis said he’s pushing for a meeting with Vladimir Putin in Moscow to try to broker an end to the war as Italy’s Prime Minister Mario Draghi called for a swift rethink of European Union mechanisms to grapple with the challenges linked to Russia’s invasion. German Chancellor Olaf Scholz pledged his support for a potential bid from Sweden and Finland to join the NATO defense alliance.
To participate in this week’s MLIV Pulse Survey, which focuses on the market fallout from the war in Ukraine, please click here.
Key events this week:
- U.S. factory orders, durable goods, Tuesday
- Fed rate decision, briefing with Chair Jerome Powell, Wednesday
- EIA crude oil inventory report, Wednesday
- Bank of England rate decision and briefing, Thursday
- OPEC+ convenes virtually for a regular meeting, Thursday
- U.S. April jobs report, Friday
Some of the main moves in markets:
Stocks
- Futures on the S&P 500 were little changed as of 8:32 a.m. New York time
- Futures on the Nasdaq 100 were little changed
- Futures on the Dow Jones Industrial Average were little changed
- The Stoxx Europe 600 rose 0.2%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index fell 0.4%
- The euro rose 0.6% to $1.0565
- The British pound rose 0.5% to $1.2550
- The Japanese yen rose 0.2% to 129.88 per dollar
Bonds
- The yield on 10-year Treasuries declined two basis points to 2.97%
- Germany’s 10-year yield declined two basis points to 0.94%
- Britain’s 10-year yield advanced five basis points to 1.96%
Commodities
- West Texas Intermediate crude fell 0.1% to $105.04 a barrel
- Gold futures fell 0.2% to $1,860.20 an ounce
More stories like this are available on
©2022 Bloomberg L.P.
