Yields rise with dollar as Fed, Biden loom large: markets wrap

Longer-dated Treasury yields extended their advance and US stock-index futures mostly fell as investors awaited clues on the timing of stimulus tapering by the Federal Reserve. The dollar strengthened as Americans braced for Joe Biden’s tax plans.

The 10-year rate traded at a two-week high, extending a bounce-back from its 50-day moving average. June contracts on the Nasdaq 100 Index led losses in the derivative market. The dollar headed for its first back-to-back gain this month. European stocks were little changed amid another busy earnings-reporting day.

Global markets are searching for new catalysts with stocks trading near record highs and even strong earnings beats are met with a shrug. Traders may need further assurance that policy makers will overlook stronger economic data to keep rates ultra-low and bond purchases at pace. Amid looming tax increases they can ill-afford any hint of tapering.

“A lot of dovishness from the Fed was already priced in, which has weighed on US yields and the dollar since the start of April despite the strong US data,” strategists led by Jean-Francois Paren, global head of research at Credit Agricole SA, wrote in a note. “Even if the Fed is very likely to leave its monetary stance totally unchanged today, there is still a high bar for the Fed to surprise markets on the dovish side. This, in turn, may continue to support a rebound in the dollar and US yields.”

A string of encouraging data and rapid vaccination progress have boosted optimism the developed world is on the path to emerge from the pandemic effects. That, in turn, has revived the so-called reflation trade in recent days. A release Thursday may show the US gross domestic product increased an annualised 6.9% in the first quarter. All these recovery signals are stoking speculation over when the Fed will start slowing its stimulus.

A surge in commodities including copper and wheat paused on Wednesday, but has already fanned concerns about price pressures. Goldman Sachs Group Inc. predicts further rallies over the next six months as the global economy rebounds from the pandemic.

The Australian dollar fell after weaker-than-expected inflation data reinforced the view that monetary policy normalisation will lag behind the Fed.

Here are some key events to watch this week:

• Fed Chair Jerome Powell holds a press conference Wednesday following the Fed meeting
• Joe Biden makes his first address as president to a joint session of Congress Wednesday
• US GDP Thursday is forecast to show growth strengthened in the first quarter
• For live updates and commentary on the markets see the MLIV blog

These are some of the main moves in markets:

Stocks

• Futures on the S&P 500 Index were little changed at 8:42 a.m. London time.
• The Stoxx Europe 600 Index was little changed.
• The MSCI Asia Pacific Index declined 0.1%.
• The MSCI Emerging Market Index fell 0.1%.

Currencies

• The Bloomberg Dollar Spot Index increased 0.2%.
• The euro declined 0.2% to $1.2067.
• The British pound sank 0.3% to $1.3874.
• The onshore yuan weakened 0.1% to 6.487 per dollar.
• The Japanese yen weakened 0.2% to 108.97 per dollar.

Bonds

• The yield on 10-year Treasuries gained two basis points to 1.64%.
• The yield on two-year Treasuries decreased less than one basis point to 0.18%.
• Germany’s 10-year yield gained three basis points to -0.22%.
• Britain’s 10-year yield climbed four basis points to 0.812%.
• Japan’s 10-year yield gained one basis point to 0.098%.

Commodities

• West Texas Intermediate crude gained 0.3% to $63.11 a barrel.
• Brent crude climbed 0.2% to $66.57 a barrel.
• Gold weakened 0.4% to $1 769 an ounce.