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Stocks weak, bond bashing alive and kicking as U.S. CPI looms

World stocks slipped to their lowest levels in almost a month, the dollar held firm and selling again gripped the world’s biggest bond markets on Tuesday ahead of data expected to show annual U.S. inflation rising at its fastest pace in 40 years. With U.S. 10-year Treasury yields rising to new highs above 2.80%, levels last seen late 2018, unease that an aggressive policy response to inflation from the U.S. Federal Reserve could undermine economic growth weighed on sentiment. European shares opened 1% lower, Japan’s blue-chip Nikkei stock index shed ...

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Euro recovers, French-German spread tightens after election results

The euro traded higher and the spread between French and German bond yields tightened on Monday after incumbent French President Emmanuel Macron won a larger than expected share in the first round of the French election. With 96% of the votes counted for Sunday’s first round, Macron garnered 27.41% of the votes and far-right candidate Marin Le Pen won 24.03%. Macron will now go into a runoff against Le Pen on April 24. A Le Pen victory could send shockwaves through France and Europe in ways similar to Britain’s vote ...

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U.S. bond funds post outflows for 13th week in a row

U.S. investors remained net sellers of bond funds in the week to April 6 on rising prospects of rapid reductions to the Federal Reserve’s balance sheet alongside steady increases in policy rates. U.S. investors sold bond funds of $2.24 billion, compared with net withdrawals of $3.86 billion in the previous week, Refinitiv Lipper data showed. Minutes of the Federal Reserve latest meeting showed this week that officials “generally agreed” in mid-March to cut up to $95 billion a month from the central bank’s asset holdings as a second tool in ...

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Cold comfort in re-steepening U.S. yield curve: Mike Dolan

Pretending it did not happen probably does not help much. Given its track record in preceding the last four recession since 1990, the brief inversion of the U.S. bond yield curve between two and 10 years has unsurprisingly sounded alarms about another pending recession over the next 18 months. In broad brush terms, these inversions reflect markets’ belief that the Federal Reserve will have to move to ‘restrictive’ policies – with interest rate above long-term neutral estimates embedded in 10 year rates – in order to slow credit and the ...

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Europe faces recession risk, so why are bond curves so steep?

The euro area economy is one of the most vulnerable to the fallout from Russia’s invasion of Ukraine, yet the message coming from its sovereign debt markets is quite different. Bond yield curves plot borrowing costs across different maturities and are seen as a good indicator of growth and inflation trends. They are also closely watched financial market indicators. The recent, albeit brief, U.S. yield curve inversion when two-year yields pushed above 10-year yields was a warning to the markets, as that move is considered a harbinger of recession. To ...

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Key events in developed markets next week

US: Fresh price jumps prompt further tightening The Federal Reserve has laid the groundwork for a 50bp interest rate rise and an announcement of phased-in quantitative tightening at the 4 May Federal Open Market Committee (FOMC) meeting. Fifty basis point rate hikes are also likely at the June and July FOMC meetings, in our view, with an eventual Fed funds peak of 3% in early 2023. Markets are not there yet, but this week’s upcoming data could push them further in that direction. The highlight will be the March consumer ...

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Asia week ahead: Central bank decisions and several data reports from China

Bank of Korea will hold rate decision meeting without its governor Bank of Korea (BoK) will meet on 14 April for its rate decision meeting. Given governor-nominee Rhee Chang-yong’s parliamentary hearing scheduled for 19 April, the Monetary Policy Committee (MPC) will be held for the first time in the absence of a governor. Indeed, the absence of a governor makes it even more difficult to predict BoK’s decision-making in a situation where inflationary pressures rise and concerns about the future growth outlook grow. However, the Korean economy has shown its ...

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Russia debt investors in limbo as default risk increases

Investors in Russia’s international bonds face an increasingly uncertain path to recover their money should Russia ultimately default, while the country itself would face increased financial isolation and hurdles to regain investor confidence. Russia’s ability to fulfill its debt obligations is in focus after sweeping sanctions in response to Moscow’s invasion of Ukraine have frozen nearly half of its $640 billion in gold and foreign reserves and limited access to global payment systems. The U.S. Treasury Department this week halted Russia’s ability to use foreign currency reserves held by the ...

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Global stocks rebound but set for weekly loss

European shares rebounded on Friday but world stocks were still on track for their first weekly loss in four as the prospect of aggressive global rate hikes and geopolitical risks rattled investors. Global risk appetite declined during the week as minutes from the Federal Reserve and European Central Bank showed policymakers are set to ramp up efforts to rein in inflation. At 0811 GMT, the MSCI world equity index, which tracks shares in 50 countries, was up 0.2% but for the week was down 1.3% and on track for its ...

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Russian lawmakers vote for delisting of Russia-registered firms from foreign bourses

Russia’s lower house of parliament has passed in a third and final reading on Wednesday a bill on delisting of companies that are registered in Russia and have depositary receipts traded on foreign bourses. Their depositary receipts will be converted into equities traded in Russia, the bill showed. Several major Russian companies have listings abroad, which has always been a matter of prestige for them. But since Russia began what it calls a “special military operation” in Ukraine on Feb. 24, Western bourses have halted trading of Russian securities. The ...

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China expects long-term capital inflows to return despite recent volatility

China’s currency regulator expects foreign investments in yuan-denominated assets to increase over the long run, despite recent fluctuations, financial media outlet Caixin reported on Thursday. The remarks came as foreign investors trimmed their holdings of Chinese government bonds at the fastest rate in three years in February, while major economies including the United States tightened monetary policy, prompting market concerns about higher capital outflows and yuan depreciation. “Short-term fluctuations in cross-border securities investments do not mean a reversal of the long-term trend of foreign investment into China’s capital market,” the ...

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European equity funds had outflows for first time in two years in March

European equity funds faced their first monthly outflow in two years in March as the Russia-Ukraine conflict and rising energy prices hurt prospects for profit growth and margins this year. According to Refinitiv Lipper, European equity funds witnessed an outflow of $27 billion last month, their first outflow since March 2020. At the same time, U.S. equity funds received $20 billion, and Asian equity funds obtained $8.7 billion in March, the data showed. The divergence in flows highlights investors’ reluctance to be exposed to markets deemed vulnerable to the ongoing ...

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Bond yields snap 4-day rising streak, offer respite to stocks

U.S. Treasury bond yields slipped from multi-year highs on Thursday and equities showed signs of steadying after Federal Reserve minutes released the previous day did nothing to add to the rate-hike momentum already priced into markets. Ten-year Treasury yields, the benchmark for global borrowing costs, have risen around 20 basis points this month, adding to a 50 bps surge in March. Shorter-maturity yields which are more sensitive to interest rate expectations, have jumped even more. Those moves, driven by expectations of faster policy tightening by the Federal Reserve and other ...

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Emerging markets suffer $9.8bln outflow in March with big hit to China

Emerging markets suffered their first portfolio outflows in a year in March, driven by investors ditching Chinese assets and growing anxiety over recent geopolitical events, a report by the Institute of International Finance (IIF) showed on Tuesday. Foreign net portfolio outflows for emerging markets came to $9.8 billion in March, IIF data showed, following a $13.3 billion inflow in February. Developing stocks lost $6.7 billion, while bonds saw $3.1 billion depart. IIF considered China outflows of $11.2 billion in bonds and $6.3 billion in stocks an “unprecedented dynamic that suggests ...

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Global bond sales to cross $10 trillion in 2022 -S&P

Global sovereign borrowing will reach $10.4 trillion in 2022, nearly a third above the average before the coronavirus pandemic, S&P Global Ratings said in a report. Despite an economic recovery, borrowing will stay elevated because of high debt rollover requirements and war in Ukraine, the ratings agency said in an annual note. While 137 countries will borrow an equivalent of $10.4 trillion in 2022, an estimated 30% lower than 2020, the overall figure is one-third higher than average borrowing between 2016 and 2019, S&P said. “Tightening monetary conditions will push ...

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