Stocks Head Higher, US 2-Year Bond Yields Close to 2.5%

A man stands on a bridge with an electronic board displaying the Shanghai and Shenzhen stock exchanges, in Lujiazui Financial District in Shanghai, China, January 6, 2021. REUTERS/Ali Song // File photo

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  • > Asian Stock Markets:
  • S&P 500 futures stable, China markets on holiday
  • Talk of more sanctions on Russia and an end to gas sales
  • Treasury yield curve reflected in recession warning
  • US 2-year Treasury yields near 2.5% for the first time since early 2019

SYDNEY (Reuters) – Stock markets made cautious gains on Monday amid talk of more sanctions against Russia over its invasion of Ukraine, while bonds screamed the danger of a hard landing for the US economy as short-term yields hit three years. altitudes.

A holiday in China slowed trade, MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It jumped 0.6%.

Japan’s Nikkei Index (.N225) It added 0.1%, while futures contracts for the S&P 500 and Nasdaq were flat. EUROSTOXX 50 futures are up 0.2% while FTSE futures are up 0.4%.

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While Russian-Ukrainian peace talks have dragged on, reports of Russian atrocities have prompted Germany to say the West will agree to more sanctions in the coming days. Read more

The German defense minister also said the EU should discuss banning Russian gas imports, a move likely to push prices higher as energy rationing is imposed in Europe. Read more

Data last week showed that inflation in the European Union has already risen to a record high, adding to pressure on the European Central Bank to rein in prices even as growth slows sharply.

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“It does appear to be time for the European Central Bank to take action,” ANZ analysts warned in a note. “While the European Central Bank will be cautious about raising interest rates, it certainly looks like it should act sooner to cancel its quantitative easing programme.”

The US Federal Reserve has already raised interest rates and is expected to do much more after the strong March jobs report on Friday. Several Fed officials are scheduled to speak at public events this week, with more upbeat signals likely to be sent, and the minutes of the latest policy meeting are due on Wednesday.

“We now expect the Fed to rise by 50 basis points in May, June and July, before reversing the pace a bit by raising 25 basis points in September, November and December,” said Kevin Kamins, chief US economist at NatWest Markets.

“This will bring the money rate into the restricted area soon, with 2.50-2.75% by the end of 2022.”

Investors have reacted by hitting short-term Treasuries and inverting the yield curve further as the market pricing the risk, all of this tightening will eventually lead to a recession.

On Monday, two-year bond yields soared to a three-year high of 2.49% and well above the 10-year high of 2.410%.

The jump in yields helped support the US dollar, especially against the yen, as the Bank of Japan repeatedly acted last week to keep bond yields near zero.

The dollar was trading solidly at 122.60 yen, not far from a seven-year high of 125.10. The euro has drifted to $1.1045 and could fall further if the European Union actually moves to stem the flow of gas from Russia, which describes its actions in Ukraine as a “special operation”.

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The dollar index was last at 98.617, having recently bounced between 97.681 and 99.377.

Rising bond yields globally have been a drag on gold, which isn’t paying off, and the metal has remained stuck at $1,920 an ounce.

Meanwhile, oil prices took an early hit after the United Arab Emirates and the Iran-aligned Houthi movement welcomed a truce that would halt military operations on the Saudi-Yemeni border, easing some concerns about potential supply problems.

Oil fell 13% last week – the biggest weekly drop in two years – after US President Joe Biden announced the largest release of US oil reserves ever.

The price stabilized as the day approached, Brent crude rose 32 cents to $104.71 while US crude added 22 cents to $99.49.

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Editing by Kenneth Maxwell

Our criteria: Thomson Reuters Trust Principles.

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