Shanghai shutdown hurts oil, bonds and takes a hit on the yen

A man wearing a protective mask, amid the outbreak of the coronavirus disease (COVID-19), walks through an electronic board displaying charts (top) for the Nikkei index outside a brokerage in Tokyo, Japan, March 10, 2022. REUTERS/Kim Kyung-Hoon

LONDON (Reuters) – Oil prices fell on Monday as the coronavirus shutdown in Shanghai fueled concerns about weak demand, while the turbulent yen’s slide continued as the Bank of Japan stood in the way of higher yields.

Global stocks were largely flat, weathering another brutal sell-off in major bond markets.

The US 10-year Treasury yields rose decisively above the 2.5% index for the first time since 2019, and the two-year yields in the Netherlands and Belgium turned positive for the first time since 2014 and even Japanese yields defied the central bank’s intervention to reach new results. its highest level in six years.

Another noticeable move came from the Japanese Yen, which is down nearly 1.5%.

Meanwhile, China’s financial hub of 26 million people asked all companies to suspend manufacturing or have people work remotely in a two-phase shutdown over nine days. Read more

The spread of restrictions in the world’s largest oil importer saw Brent slip 4.35 dollars to 116.33 dollars, while US crude fell 4.5 dollars, or 4 percent, to 109.38 dollars.

Although Chinese potato chips (.CSI300) And the Japanese Nikkei index fell 0.6% (.N225) It lost 0.7%, US stock futures fell, weak oil prices cheered European shares that were broadly firmer (.stoxx).

MSCI World Stock Index was flat, (.MIAPJ0000PUS.)resilient in the face of a radically more hawkish Fed and higher bond yields.

The risk-taking sentiment boosted hopes for progress at Russia-Ukrainian peace talks due to be held in Turkey this week after President Volodymyr Zelensky said Ukraine was ready to discuss adopting a neutral status as part of a deal. {nL2N2VU0EH]

“Sentiment has been surprisingly resilient in the stock markets, which are buying positive headlines from the war in Ukraine,” said Jan von Gerrich, chief analyst at Nordea.

“The repricing that continues at the short end of the US yield curve is happening very quickly and without any consequences for Wall Street at the moment.”

Citi last week forecast 275 basis points for Fed tightening this year including half a point increases in May, June, July and September.

yield increase

Expectations that the Federal Reserve might push harder and faster to tame inflation that is at four-decade highs, continued to batter the sovereign bond markets.

Two-year Treasury yields are up about 10 basis points in the London trade, after hitting their highest since early 2019 at 2.41%. Ten-year bond yields also rose to new highs above 2.5%.

One measure of the US bond yield curve – the gap between five-year and 30-year Treasury yields – has inverted for the first time since 2006 in a sign that recession risk is increasingly priced in.

Timothy Graf, head of macroeconomic strategy for EMEA at State Street, said selling bonds seemed like “the path of least resistance right now.”

“The Fed has given no indication that it will slow down, if anything has increased hawkish guidance,” he added.

Eurozone bond markets have continued to move into positive yield territory, while money market prices are indicating that investors are now expecting a 60 basis point interest rate hike from the European Central Bank by the end of the year versus 50 basis point last week.

The Australian 3-year bond yield rose to 2.386%, the highest level since 2014.

Japan’s 10-year government bonds rose to a six-year high of 0.25%, hitting the upper end of the Bank of Japan’s policy range even after the central bank intervened in the market in an attempt to rein it in.

The Bank of Japan reinforced its ultra-loose policy by offering to buy as many bonds as needed to keep 10-year bond yields below 0.25%.

That saw the dollar climb to its highest level since August 2015 at 123.82 yen, giving it a gain of more than 7% on the month. Similarly, the resource-rich Australian dollar rose more than 10% this month to 93.20 yen.

The euro has lost about 2.3% against the dollar in the same period, but at $1.0954, just above a two-year low of $1.0804.

In the commodity markets, gold fell to $1,931 an ounce, down about 1.3%.

(Covering) By Dara Ranasinghe, Editing by William MacLean

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