A look at the day ahead from Saikat Chatterjee.
Bond investors could be forgiven for humming U2's signature tune after the strange moves in the U.S. Treasury yield curve in the wake of the Federal Reserve catching markets off guard last week by anticipating rate hikes as early as 2023.
Consider this: 2-year U.S. Treasury yields are near 16-month highs while 30-year debt yields are near 2021 lows. The 5 year-30 year yield curve saw the largest one-week flattening in nearly ten years, says Deutsche Bank. It is unnatural for U.S. long-end yields to decline and the curve to flatten after a hawkish Fed meeting before a hiking cycle has even begun.
Whether the U.S. bond market moves signal a weaker-than-expected global economic recovery or too much hawkishness being priced in at the front end of the curve, markets are clearly in risk-off mode.
U.S. and European stock futures are in the red after a weak Wall Street close while safe-haven currencies including the Japanese yen are in demand.
There is plenty of food of thought for investors this week with a swathe of flash business surveys from the world’s major economies on Wednesday offering more clues into whether the economic recovery is proving as strong and rapid in June as it did in previous months.
Several Fed officials speak this week, including Chair Jerome Powell, who testifies before Congress on Tuesday. Investors will watch if the Bank of England becomes the latest central bank to signal further steps on the path to tapering pandemic-era stimulus after the Federal Reserve’s hawkish tilt last week.
Bitcoin was nursing overnight losses while the Australian dollar fell to seven-month lows driven by a steep drop in iron ore prices. Inflationary signals were mixed from the commodities markets with copper nursing losses while oil climbed above $72 a barrel.
In corporate news, Billionaire investor William Ackman's Pershing Square Tontine Holdings signed a deal to buy 10% of Universal Music Group (UMG), Taylor Swift's label for about $4 billion while Goldman launched its transaction bank in Britain.
Key developments that should provide more direction to markets on Monday:
Copper prices at two-month lows after near 9% drop last week ECB’s Lagarde speaks to women political leaders’ summit Fed speaker corner: Bullard, Kaplan Emerging markets: U.S. National Security Advisor Jake Sullivan says Washington readying another package of sanctions against Russia
(Reporting by Saikat Chatterjee; editing by Karin Strohecker)