(Bloomberg) — European government bonds fell with UK gilts as rampant consumer price pressures in Britain proved a cautionary tale for global central banks fighting inflation and markets wagering they’re close to the end of their tightening cycles.
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Traders ramped up bets for further Bank of England interest-rate hikes after another shock inflation reading, pricing the benchmark reaching a level not seen since the turn of the century. Benchmark government yields in the UK rose 5 basis points, those in Germany climbed 3 basis points, while US Treasury yields added 2 basis points.
The inflation setback could justify a more hawkish tone by Federal Reserve Chair Jerome Powell, who is due to give his semi-annual report to Congress on Wednesday. It also heaps pressure on the Bank of England opting for a bigger rate increase when policymakers meet on Thursday.
The example of the UK shows that price pressures haven’t yet succumbed to 12 consecutive hikes, and may act as a clarion call for global central banks who are considering downshifting to easier policy, according to Pooja Kumra, senior European rates strategist at Toronto Dominion Bank. Bets on higher terminal rates are reverberating through developed markets.
“The BOE is still not able to get a control on the underlying pressures,” said Pooja Kumra, senior European rates strategist at Toronto Dominion Bank. “A key risk for markets is whether Powell provides any conditions for the FOMC getting back to their hiking cycle after a pause in June.”
Futures contracts on the S&P 500 fluctuated after the gauge notched its first back-to-back losses in nearly four weeks. Economic bellwether FedEx Corp. tumbled in extended US trading after its outlook fell short of analyst consensus estimates on weakened demand.
Crowded bullish positioning, narrow breadth, high valuations, and optimistic soft-landing bets pose risks to a power second-quarter stock rally, according to Goldman Sachs Group Inc. strategists including Cormac Conners and David J Kostin. They recommend hedging S&P 500 exposure. Goldman’s base case is for the S&P 500 to climb to 4,700 in 12 months but the investment bank also sees a drop to 3,400 as possible if a recession becomes more likely.
Key events this week:
Federal Reserve Chair Jerome Powell delivers semi-annual congressional testimony before the House Financial Services Committee, Wednesday
Chicago Fed President Austan Goolsbee speaks, Wednesday
Eurozone consumer confidence, Thursday
Rate decisions in UK, Switzerland, Indonesia, Norway, Mexico, Philippines, Turkey, Thursday
US Conference Board leading index, initial jobless claims, current account, existing home sales, Thursday
Fed’s Powell delivers testimony before the Senate Banking Committee, Thursday
Cleveland Fed’s Loretta Mester speaks Thursday
Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday
Japan CPI, Friday
US S&P Global Manufacturing PMI, Friday
St. Louis Fed President James Bullard speaks, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 0.1% as of 9:24 a.m. London time
S&P 500 futures were little changed
Nasdaq 100 futures were little changed
Futures on the Dow Jones Industrial Average were little changed
The MSCI Asia Pacific Index fell 0.7%
The MSCI Emerging Markets Index fell 0.9%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro rose 0.1% to $1.0930
The Japanese yen fell 0.5% to 142.11 per dollar
The offshore yuan fell 0.2% to 7.1959 per dollar
The British pound fell 0.2% to $1.2734
Cryptocurrencies
Bitcoin rose 2.4% to $28,855.94
Ether rose 1.4% to $1,809.9
Bonds
The yield on 10-year Treasuries advanced three basis points to 3.75%
Germany’s 10-year yield advanced three basis points to 2.44%
Britain’s 10-year yield advanced six basis points to 4.40%
Commodities
Brent crude rose 0.2% to $76.05 a barrel
Spot gold fell 0.1% to $1,934.48 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Abhishek Vishnoi, Farah Elbahrawy and Brett Miller.
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Source: https://finance.yahoo.com/news/asia-stocks-set-open-lower-220448038.html