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.
(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.
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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