MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.3%, Nikkei slumped 0.1%, S&P 500 retreated 0.1%, Nasdaq shed 0.2%, EUROSTOXX 50 was flat and FTSE gained 0.4%
World share markets were mixed on Monday amid talk of yet more sanctions against Russia over its invasion of Ukraine, while bonds continued to spell the risk of a hard landing for the U.S. economy as short-term yields hit three-year highs.
A holiday in China made for sluggish trading, and MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.3%.
Japan’s Nikkei slumped 0.1%, while S&P 500 stock futures retreated 0.1% and Nasdaq futures shed 0.2%. EUROSTOXX 50 futures were flat and FTSE futures gained 0.4%.
Data out last week showed inflation in the EU had already surged to a record high, piling pressure on the European Central Bank to rein in runaway prices even as growth slows sharply.
It really looks like it is time for the ECB to act, warned analysts at ANZ in a note. While the ECB will be cautious about raising rates, it certainly looks like it should act sooner to abolish its QE programme.
The U.S. Federal Reserve has already hiked rates and is seen doing a lot more after Friday’s solid March payrolls report. A number of Fed officials are due to speak at public events this week, with the prospect of sending more hawkish signals, and minutes of the last policy meeting are due on Wednesday.
We now expect the Fed to hike by 50bps in May, June, and July, before dialling the pace back slightly by delivering 25bps hikes at the September, November and December, said Kevin Cummins chief U.S. economist at NatWest Markets.
This will bring the funds rate into restrictive territory sooner, with 2.50-2.75% by year-end 2022, he said.
Investors reacted by hammering short-dated Treasuries and further inverting the yield curve as the market priced in the risk all this tightening would ultimately lead to recession.
On Monday, two-year yields were up at three-year highs of 2.49% and well above the 10-year at 2.410%.
The jump in yields has underpinned the U.S. dollar, particularly against the yen given the Bank of Japan acted repeatedly last week to keep its bond yields near zero.
The dollar was trading firm at 122.60 yen and not far from its recent seven-year peak of 125.10. The euro drifted to $1.1041 and could fall further should the EU actually act to stop gas flows from Russia, which calls its actions in Ukraine a ‘special operation’.
The dollar index was last at 98.617, having recently bounced around between 97.681 and 99.377.