(Bloomberg) — U.S. equity futures edged higher with European shares on Monday as a drop in Treasury yields provided a tailwind for stocks. Turkey’s lira tumbled after the country’s central bank governor was ousted.
Contracts on the S&P 500 Index rose modestly and those on the Nasdaq 100 jumped after the 10-year U.S. Treasury yield fell back below 1.70% from the highest levels in about 14 months. The Treasury market remains in sharp focus this week amid a slate of auctions and moves by the Fed to let a key bank capital exemption lapse.
Gains in tech were offset by declines in travel firms on the Stoxx 600 Index. Banks exposed to Turkey fell after President Recep Tayyip Erdogan moved to replace the country’s third central bank chief in less than two years, sparking a decline of almost 15% in the lira. The dollar was little changed and oil fluctuated in the wake of its worst week since October.
Last week’s Treasury selloff served as a stark reminder that investors remain concerned that a stronger economic recovery could lead to inflation. Despite reassuring comments from policymakers, some suspect price pressures could force the Federal Reserve to tighten monetary policy sooner than current guidance suggests.
“Clearly, the market is skeptical that the Fed will be able to keep interest rates at current levels for the next three years,” Diana Mousina, senior economist in the multi-asset group at AMP Capital Investors Ltd., said in a note. “We think that nominal bond yields can still shoot higher in the short-term towards 2% and above on inflation concerns. Markets are likely to worry that this move is permanent, rather than temporary.”
Fed Chairman Jerome Powell reiterated in a Wall Street Journal editorial that the central bank will provide aid to the economy “for as long as it takes.” Richmond Fed President Thomas Barkin said in a Bloomberg TV interview Sunday that there is no sign yet of unwanted inflation pressures.
A central-bank exemption that allowed lenders load up on Treasuries and deposits without setting aside extra capital to cushion losses will lapse March 31. The regulator also said it plans further changes to this supplementary leverage ratio, or SLR.
These are some key events to watch this week:
Fed Chair Powell is due Monday at the BIS Innovation Summit. The ECB’s Christine Lagarde, BOE’s Andrew Bailey and chiefs of Sweden, Canada, Mexico and Brazil all follow.Powell and Treasury Secretary Janet Yellen are expected to make their first joint appearance before the U.S. House Financial Services committee to testify on Fed and Treasury pandemic policies Tuesday.The U.S. Treasury holds auctions of two-, five- and seven-year debt.EIA crude oil inventory report on Wednesday.On Friday, February U.S. personal income and spending data arrives.
These are some of the main moves in financial markets:
Futures on the S&P 500 Index increased 0.2% as of 8:20 a.m. New York time.The Stoxx Europe 600 Index was little changed.The MSCI Asia Pacific Index fell 0.2%.The MSCI Emerging Market Index gained 0.2%.
The Bloomberg Dollar Spot Index was little changed.The euro jumped 0.2% to $1.1926.The British pound fell 0.1% to $1.386.The onshore yuan was little changed at 6.507 per dollar.The Japanese yen strengthened 0.1% to 108.81 per dollar.
The yield on 10-year Treasuries fell three basis points to 1.69%.The yield on two-year Treasuries decreased less than one basis point to 0.15%.Germany’s 10-year yield declined less than one basis point to -0.30%.Britain’s 10-year yield decreased less than one basis point to 0.836%.Japan’s 10-year yield dipped three basis points to 0.083%.
West Texas Intermediate crude decreased 0.3% to $61.26 a barrel.Brent crude dipped 0.4% to $64.30 a barrel.Gold weakened 0.7% to $1,733.55 an ounce.
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