Gilts fell and the pound whipsawed as traders struggled to make sense of U.K. policy. U.S. futures and European stocks rose ahead of Thursday’s inflation report.
The Bank of England confirmed its plan to end emergency bond purchases on Friday after confusion sparked by a Financial Times report that the central bank was prepared to extend support to stave off a crisis in U.K. pensions. Meanwhile, some investors are betting that the government may make further fiscal u-turns.
A report that the UK economy shrank unexpectedly in August also weighed on the nation’s bonds. The yield on 30-year gilts — favored by investors such as pension funds at the heart of recent market stress — rose to 4.95 per cent.
“The Bank of England is a test case for how hawkish central banks can be without doing damage to financial stability,” said Michael Metcalfe, global head of macro strategy at State Street Global Markets.
In the U.S., Treasury yields held near multi-year highs, the dollar was little changed and stocks were set to snap a five-day losing streak as investors are looking to earnings and inflation figures for clues on Federal Reserve policy.
“I don’t see any imbalances yet that would cause a pivot from the Fed,” Citigroup Inc. economist Veronica Clark said on Bloomberg Television. “The Fed will pay attention to global financial stability concerns, a strong dollar is part of that, but it’s ultimately going to be domestic conditions and what the Fed is seeing on inflation.”
Kristina Hooper, chief global market strategist for Invesco, said in a note that while world economy is slowing after rate hikes, there is yet to be a meaningful decline in inflation. “This is an extraordinary monetary policy tightening environment and we are waiting to see if something breaks globally,” she said. “The U.K. has come close.”
Elsewhere, gold and oil prices rose.
NATO defense chiefs are set to gather in Brussels on Wednesday to discuss how to better protect critical infrastructure, ramp up weapons production and maintain support for Ukraine.
Key events this week:
- Earnings this week include: JPMorgan Chase & Co., Citigroup Inc., Morgan Stanley, BlackRock Inc., Delta Air Lines Inc., UnitedHealth Group Inc., U.S. Bancorp, Wells Fargo & Co.
- FOMC minutes for September meeting, Wednesday
- US PPI, mortgage applications, Wednesday
- OPEC Monthly Oil Market Report, Wednesday
- Fed’s Michelle Bowman and Neel Kashkari speak
- ECB’s Christine Lagarde speaks
- U.S. CPI, initial jobless claims, Thursday
- G-20 finance ministers and central bankers meet, Thursday
- China CPI, PPI, trade, Friday
- US retail sales, business inventories, University of Michigan consumer sentiment, Friday
- BOE emergency bond buying is set to end, Friday
Some of the main moves in markets:
Stocks
- Futures on the S&P 500 rose 0.8 per cent as of 5:47 a.m. New York time
- Futures on the Nasdaq 100 rose 1 per cent
- Futures on the Dow Jones Industrial Average rose 0.6 per cent
- The Stoxx Europe 600 rose 0.3 per cent
- The MSCI World index fell 1 per cent
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at US$0.9704
- The British pound rose 0.8 per cent to US$1.1056
- The Japanese yen fell 0.4 per cent to 146.39 per dollar
Cryptocurrencies
- Bitcoin rose 0.8 per cent to US$19,177.03
- Ether rose 1.7 per cent to US$1,303.26
Bonds
- The yield on 10-year Treasuries was little changed at 3.94 per cent
- Germany’s 10-year yield advanced seven basis points to 2.37 per cent
- Britain’s 10-year yield advanced eight basis points to 4.52 per cent
Commodities
- West Texas Intermediate crude rose 0.5 per cent to US$89.78 a barrel
- Gold futures fell 0.5 per cent to US$1,677.50 an ounce
Source: bnnbloomberg.ca
