U.S. Futures Dip, Treasury Curve Inversions Deepen: Markets Wrap

(Bloomberg) — U.S. equity futures and Treasuries declined Monday, while Asian shares were mixed, as traders weighed the prospect of aggressive Federal Reserve interest-rate hikes and stiffer sanctions on Russia.

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Shares fluctuated in Japan, Australia and South Korea. Equity futures earlier rose for Hong Kong, where Chinese technology shares could get a tailwind after regulators removed a key hurdle that impedes full U.S. access to audits.

The dollar was firm as investors evaluated a push by some European Union governments for new penalties on Russia following reports that its troops executed unarmed civilians in Ukrainian towns.

Oil fell, extending a drop sparked by a U.S. announcement of an unprecedented release of strategic reserves to fight elevated energy costs. A worsening Covid outbreak and lockdowns in China also pose a threat to demand.

The Treasury yield curve is flashing more warnings that economic growth will slow as the Federal Reserve hikes interest rates to tame inflation stoked in part by commodities. The two-year U.S. yield has exceeded the 30-year for the first time since 2007, joining deepening inversions on other parts of the curve.

The Fed minutes later this week will shape views on the odds of a half percentage-point rate increase in May and provide key details on how the central bank will shrink its balance sheet.

“It would not be surprising to see yields rise further from here and it is very hard to know where they will land,” Angela Ashton, founder and director of investment consulting firm Evergreen Consultants, wrote in a note. “Markets are volatile and there is every chance they will overshoot.”

New York Fed President John Williams said Saturday a “sequence of steps” can get rates back to more normal levels. Mary Daly, president of the San Francisco Fed, said in an interview published Sunday that rising inflation and a tight labor market strengthen the case for a half-point May hike.

A strong jobs report Friday bolstered the case for the Fed to push up borrowing costs. The U.S. added 431,000 jobs in March while the unemployment rate fell to 3.6%, near its pre-pandemic low.

In China, where markets are closed for a holiday, most of Shanghai’s 25 million residents are under some form of Covid lockdown. State media also reported a new subtype of the omicron variant.

Key events to watch this week:

  • Reserve Bank of Australia rate decision, Tuesday

  • Fed Governor Lael Brainard speaks, Tuesday

  • Federal Reserve minutes, Wednesday

  • China Caixin composite and services PMI, Wednesday

  • EIA crude oil inventory report, Wednesday

  • Philadelphia Fed President Patrick Harker speaks, Wednesday

  • St. Louis Fed’s James Bullard, Atlanta Fed’s Raphael Bostic, Chicago Fed’s Charles Evans speak at separate events, Thursday

  • Reserve Bank of India rate decision, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.2% as of 9:30 a.m. in Tokyo. The S&P 500 rose 0.3%

  • Nasdaq 100 futures declined 0.3%. The Nasdaq 100 rose 0.2%

  • Japan’s Topix index rose 0.1%

  • Australia’s S&P/ASX 200 Index rose 0.5%

  • South Korea’s Kospi index added 0.1%

  • Hang Seng Index futures rose 0.7% earlier

Currencies

  • The Japanese yen was at 122.39 per dollar

  • The offshore yuan was at 6.3690 per dollar

  • The Bloomberg Dollar Spot Index was steady

  • The euro was at $1.1049

Bonds

Commodities

  • West Texas Intermediate crude fell 0.8% to $98.49 a barrel

  • Gold was at $1,925.15 an ounce

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