Bonds rally as economic threat hits risk appetite: Markets Wrap

(Bloomberg) — Treasuries rose and stocks fell as investors hedged against the risk that economies would falter under central banks that pushed their inflation-fighting zeal and rate-hike campaigns too far.

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European bond yields fell as the Stoxx Europe 600 index extended losses to a sixth day, its longest losing streak since October. Germany’s benchmark 10-year yield fell four basis points as data showed the business outlook worsened to the lowest seen this year as Europe’s biggest economy struggles to emerge from recession.

Fears have risen in stock markets that central banks determined to stop inflation will continue to push interest rates higher and risk breaking fragile economies. Futures on the S&P 500 pointed lower after the gauge had its worst week since March, while benchmark U.S. Treasury yields fell four basis points.

“As central banks remain hawkish amid persistent inflationary pressures, the likelihood of a soft landing falls,”[ads1]; Andrew McCaffery, global chief investment officer at Fidelity International, said in a note published Monday. “Investors should consider reducing overall risk appetite.”

Meanwhile, markets have absorbed the biggest threat to President Vladimir Putin’s nearly quarter-century grip on power. Russian officials met with key partners, including in China, a day after Yevgeny Prigozhin halted the advance of his Wagner mercenary group on Moscow.

Oil rose, with traders mindful of the risk that any prolonged unrest in Russia could reverberate through global oil markets. The country’s war in Ukraine has already increased trade flows, with major consumers in Asia including China increasing 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 had commodities to fulfill that role,” Trevor Greetham, head of multi-assets at Royal London Asset Management Ltd, said in an interview with Bloomberg TV. “When there’s suddenly a big military event, commodity prices can go up, and you have that protection.”

Gas traders were also bracing for more market turbulence, with European gas already experiencing the highest volatility since the invasion of Ukraine.

The shares of the Russian aluminum producer United Co. Rusal International PJSC, which provides some insight into appetite for the country’s assets via Hong Kong-traded securities, fell nearly 9%.

Important events this week:

• US sales of new homes, durable goods, Conference Board consumer confidence, Tuesday

• ECB President Christine Lagarde speaks at the ECB Forum in Sintra, Portugal, on Tuesday

• China’s industrial surplus, Wednesday

• US wholesale inventories, merchandise trade balance, Wednesday

• The Federal Reserve reveals the results of its annual stress test for the banking industry on Wednesday

• Policy panel with ECB’s Christine Lagarde, Fed Chair Jerome Powell, BOJ’s Kazuo Ueda and BOE’s Andrew Bailey at ECB Forum in Sintra, Wednesday

• Sweden interest rate decision, Thursday

• US GDP, first jobless claims, Thursday

• Atlanta Fed President Rafael Bostic talks about the US economic outlook at the event in Dublin on Thursday

• China manufacturing PMI, non-manufacturing PMI, Friday

• Eurozone CPI, unemployment, Friday

• Japan unemployment, industrial production, Tokyo CPI, Friday

• US Personal Income and Spending, University of Michigan Consumer Sentiment, Friday

Some of the main features of markets:

Stock

• The Stoxx Europe 600 was down 0.3% at 10:39 a.m. London time

• S&P 500 futures fell 0.1 percent

• Nasdaq 100 futures fell 0.2 percent

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific index fell 0.2 percent

• The MSCI Emerging Markets index fell 0.3 percent

Currencies

• The Bloomberg Dollar Spot index fell 0.1 percent

• 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

Bonds

• The yield on 10-year government bonds fell four basis points to 3.69%

• Germany’s 10-year yield fell four basis points to 2.31%

• UK 10-year yields 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 produced with assistance from Bloomberg Automation.

–With assistance from Allegra Catelli and Ksenia Galouchko.

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