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Stocks Eye Steady Open; Dollar Up in Haven Trade: Markets Wrap

(Bloomberg) — Asian stocks are poised for a cautious start to the week with investors fretting over rising bond yields and inflation as economic activity picks up. Turkey’s lira tumbled after the central-bank head was replaced.

U.S. equity futures fluctuated, while contracts fell in Japan. Australian shares edged higher at the open. The Turkish lira slumped as much as 15% in early Asian trading after President Recep Tayyip Erdogan removed the central-bank governor following a bigger-than-expected increase in interest rates. The dollar advanced against most Group-of-10 currencies.

The S&P 500 Index weakened slightly on Friday. The financial sector underperformed after the Federal Reserve let a capital break for big banks expire. The tech-heavy Nasdaq 100 recovered from Thursday’s slump. Oil slipped after its worst week since October.

A heavy slate of Treasury auctions in maturities that have taken a beating recently will keep the bond market on edge this week. Ten-year yields ended last week above 1.7%, at the highest levels in about 14 months.

Investor concerns about the possibility of higher interest rates are dominating equity and bond markets. Selling in bonds has propelled yields higher and fueled a rotation out of growth into value shares, on the view that rebounding inflation may force the Fed to tighten monetary policy sooner than its current guidance suggests.

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.

“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.”

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 plans further changes to this supplementary leverage ratio, or SLR.

Meanwhile, the European Union is set to block exports of the AstraZeneca Plc vaccine to the U.K. until the drugmaker fulfills its delivery obligations to the bloc. The pound was weaker.

These are some key events to watch this week:

Fed Chair Powell is first up Monday at the BIS Innovation Summit, a virtual gathering of major central bankers. He speaks alongside Bundesbank’s Jens Weidmann on progressing with the digital age. 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.Friday, February U.S. personal income and spending data comes in the wake of $600 stimulus checks but before the latest round of $1,400 payments began hitting Americans’ bank accounts.

These are some of the main moves in financial markets:

Stocks

S&P 500 futures fell 0.1% as of 8:35 a.m. in Tokyo. Nasdaq 100 futures rose 0.1%.Nikkei 225 futures in Singapore fell 0.8%.Australia’s S&P/ASX 200 Index gained 0.2%.Hang Seng Index futures rose 0.4% earlier.

Currencies

The yen was little-changed at 108.91 per dollar.The Bloomberg Dollar Spot Index advanced 0.2%.The euro fell 0.1% to $1.1887.The Australian dollar dropped 0.2% to 77.27 U.S. cents.

Bonds

The yield on 10-year Treasuries climbed one basis point to 1.72%, the highest in about 14 months.Australia’s 10-year bond yield fell about one basis point to 1.79%.

Commodities

West Texas Intermediate crude fell 0.5% to $61.11 a barrel.Gold fell 0.3% to $1,739.37 an ounce.

(A previous version corrected the extent of the Turkish lira’s decline.)

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