Bonds Curve Inverts; U.S. Equity Futures, Oil Fall: Markets Wrap

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(Bloomberg) — Sovereign bonds and U.S. equity futures fell Monday as economic risks from inflation and tightening monetary policy sapped sentiment. A key section of the Treasury yield curve inverted, stoking fears of a growth downturn.

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The U.S. 10-year Treasury yield climbed past 2.5%, above a technical trendline that has served as a ceiling since the late 1980s. The yield on the five-year note rose above the 30-year — an inversion that’s heralded recessions in the past, and raises concerns about a policy misstep as the Federal Reserve hikes interest rates.

S&P 500 and Nasdaq 100 contracts dipped and those for Europe climbed as investors also monitored Russia’s war in Ukraine, now in its second month. Asian shares were mixed, with a technology rally bolstering Hong Kong.

China’s mobility curbs to stem a Covid outbreak weighed on crude oil. West Texas Intermediate slid to around $110 a barrel as a Covid-linked lockdown in Shanghai stirred concerns that China’s virus resurgence imperils oil demand.

The yen declined after the Bank of Japan said it will purchase an unlimited amount of 10-year bonds at a fixed rate to check yields. The dollar rose.

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.

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.

While global shares have recovered from the lows sparked by Russia’s invasion, 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.”

In cryptocurrencies, Bitcoin scaled $46,000 following a recent rally that’s enabled the digital token to erase losses and turn positive for the year.

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

S&P 500 futures fell 0.3% as of 1:16 p.m. in Tokyo. The S&P 500 rose 0.5% Friday
Nasdaq 100 futures fell 0.4%. The Nasdaq 100 fell 0.1% Friday
Japan’s Topix index shed 0.1%
South Korea’s Kospi index was little changed
Australia’s S&P/ASX 200 index rose 0.3%
Hong Kong’s Hang Seng index increased 1.3%
China’s Shanghai Composite index slipped 0.1%
Euro Stoxx 50 futures climbed 0.3%