(Bloomberg) — Stocks in Europe climbed along with U.S. equity futures on Monday as negotiators from Russia and Ukraine prepare for a new round of talks. A global bond rout deepened, with the five-year Treasury yield cresting 2% for the first time since 2019.
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The Stoxx Europe 600 index jumped more than 1%, with carmakers leading the advance following a “confident” outlook from Volkswagen AG. Basic-resources and energy stocks fell as crude oil declined along with natural gas. Tech investor Prosus NV slumped more than 10% after a continued selloff in Chinese technology shares amid regulatory headwinds and concerns about Beijing’s relationship with Russia. Contracts on the S&P 500 and Nasdaq 100 nudged higher, signaling some calm may return to U.S. markets after last week’s volatile trading.
The 10-year Treasury yield climbed to its highest level since July 2019 and yields across the euro region also jumped. The Federal Reserve on Wednesday is expected to begin a cycle of rate increases to curb inflation, starting with a 25 basis-points move. Price pressures were already high before the conflict and the isolation of resource-rich Russia upended commodity flows.
Investors are parsing efforts at diplomacy as Russia continues its war in Ukraine, as well as comments from a U.S. official that Moscow asked China for military assistance. The flattening U.S. Treasury yield curve, and a 12% drop in global stocks this year, signal worries that receding stimulus and higher costs for energy, grains and metals may throttle the world economic recovery.
“We are experiencing extraordinary volatility in global equities compounded by wavering market sentiment, and the risk of recession intensifies on spiraling commodity prices,” Louise Dudley, portfolio manager for global equities at Federated Hermes, wrote in a note. “We expect ongoing swings in the short term as geopolitical uncertainty over Russian crude persists.”
The 9% plunge in a gauge of Chinese tech firms reverberated around the region, leaving an Asia-Pacific equity index in the red for a second session. A Covid lockdown in Shenzhen, a tech hub, added to the geopolitical and regulatory risks facing the sector.
Crude dropped while remaining above $105 a barrel. The dollar edged lower and gold retreated. The ruble was steady versus the greenback in Moscow trading, with Russia’s stock market still closed. Investors are waiting to see if Russia defaults on its international debt after losing access to almost half of its foreign-exchange reserves.
‘Stuck’ Fed
The Fed is the drawcard among eight Group-of-20 members whose monetary officials are due this week to assess economic prospects.
The Fed is “really stuck between the real economy and the financial economy,” Karen Harris, Bain & Co. global head of macro research, said on Bloomberg Television. “You have mainstream struggling with inflation — that’s why we are set to see these rises coming in March. On the other side we are trying not to prick the financial economy. Either path is deflationary, recessionary.”
While the U.S. and some other nations are tightening monetary settings, speculation is growing that China will introduce more easing to alleviate a slowdown. The yuan and China’s 10-year government bond yield retreated.
Meanwhile, senior U.S. and China officials are set to meet Monday to discuss Ukraine. Russian missiles hit a military training facility in western Ukraine close to Poland, raising new concerns about the conflict potentially spilling over Ukraine’s borders.
Here are some key events to watch this week:
China one-year medium-term lending facility rate, economic activity data, Tuesday
EIA crude oil inventory report, Wednesday
FOMC rate decision and Fed Chair Jerome Powell news conference, Wednesday
Bank of England rate decision, Thursday
ECB President Christine Lagarde, Executive Board member Isabel Schnabel, Governing Council member Ignazio Visco and Chief Economist Philip Lane speak at a conference, Thursday
Bank of Japan rate decision, Friday
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Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 1.2% as of 9:37 a.m. London time
Futures on the S&P 500 rose 0.6%
Futures on the Nasdaq 100 rose 0.3%
Futures on the Dow Jones Industrial Average rose 0.8%
The MSCI Asia Pacific Index fell 1.4%
The MSCI Emerging Markets Index fell 2.2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro rose 0.4% to $1.0960
The Japanese yen fell 0.5% to 117.84 per dollar
The offshore yuan fell 0.3% to 6.3758 per dollar
The British pound rose 0.1% to $1.3051
Bonds
The yield on 10-year Treasuries advanced nine basis points to 2.08%
Germany’s 10-year yield advanced nine basis points to 0.33%
Britain’s 10-year yield advanced nine basis points to 1.58%
Commodities
Brent crude fell 3.2% to $109.12 a barrel
Spot gold fell 1.3% to $1,962.76 an ounce
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