BoJ easing talk sends bond yields up

LONDON (Reuters) – Signs that the Bank of Japan (BoJ) might scale back its monetary stimulus faster than expected sent tremors through bond markets on Monday, while European stocks slipped as threats of further U.S. tariffs on China drained risk appetite.

People walk past an electronic board showing Japan’s Nikkei average outside a brokerage at a business district in Tokyo, Japan August 9, 2017. REUTERS/Kim Kyung-Hoon

Europe’s bond yields climbed after a Reuters report that the BoJ was discussing modifying its huge easing program sent Japan’s 10-year bond yield to a six-month high.

The report rekindled anxieties about monetary stimulus easing around the world and piled further pressure on investors already struggling to navigate rising protectionism.

The yield on Europe’s benchmark bond, the German 10-year Bund DE10Y=TT, hit a one-month high of 0.39 percent and U.S. 10-year Treasury yields US10YT=RR also hit their highest in a month at 2.90 percent.

The yen climbed to two-week highs against the dollar JPY= and was last up 0.2 percent at 111.14 per dollar.

“It’s all that concern investors have about the move from global quantitative easing to global quantitative tightening. That fear gets stoked when you have reports such as this,” Psigma Investment Management’s head of investment strategy, Rory McPherson.

“The ECB meeting this week will be more in focus now that we’ve had this concern about Japan.”

To view a graphic on Japanese bond yields jump to 6-month high, click:

FILE PHOTO: Bundles of banknotes of U.S. Dollar are pictured at a currency exchange shop in Ciudad Juarez, Mexico January 15, 2018. REUTERS/Jose Luis Gonzalez/File Photo

The dollar index .DXY meanwhile bounced back, up 0.1 percent from two-week lows hit after U.S. President Trump criticized the Federal Reserve’s tightening policy and accused the European Union and China of manipulating their currencies.

“We see the latest news on trade policy as pointing to continued high risk of escalation between the U.S. and China, and a renewed focus of the Trump Administration on currency matters,” Goldman Sachs analysts said.

Beijing said it has no intention of devaluing the yuan to help exports.

Trump’s comments about rates also helped the Treasury yield curve reach its steepest in three weeks US2US10=TWEB. The yield curve’s flattening has been seen by some as a sign of an impending recession.

The U.S. president’s new threats to slap duties on all $500 billion of U.S. imports from China triggered sell-offs across stock markets, though good earnings kept a lid on losses.

The MSCI all-country world index declined just 0.1 percent while MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.2 percent.

Europe’s STOXX 600 fell 0.2 percent by 1000 GMT as investors braced for a packed earnings week and a meeting between European Commission President Jean-Claude Juncker and Trump to discuss threatened auto tariffs which could damage carmakers.

“The pattern of Trump’s meetings has generally been more conciliatory when he meets in person. It could actually be good for autos,” Psigma’s McPherson said.

Pedestrians are reflected in a window in front of a board displaying stock prices at the Australian Securities Exchange (ASX) in Sydney, Australia, February 9, 2018. REUTERS/David Gray

Europe’s autos sector .SXAP fell 0.6 percent, hitting a 2-1/2 week low. The index is down 9 percent this year and is among the worst performing European sectors.

Goldman Sachs analysts said auto tariffs, if they came to pass, were likely to cause weakness in the Canadian dollar and Mexican peso, possibly also affecting the euro, pound, yen, and Korean won as investors priced in a hit to the economy.

“The global economy is still okay, but the risk is now very high, and if trade policies don’t make a U-turn very soon, we’ll see a measurable impact on growth already next year,” UniCredit chief economist Erik Nielsen said.

A rally in the euro EUR=, which has been gaining from dollar weakness, fizzled out. The single currency was down 0.2 percent at $1.1691 by 1000 GMT.

The euro’s weakening over the past few months is likely to boost earnings for euro zone exporters, analysts say.

Crude prices recovered from a fall as concerns over production losses eclipsed worries about fuel demand. [O/R]

U.S. crude CLc1 rose 0.6 percent to $68.64 a barrel after posting its third straight weekly loss. Brent crude LCOc1 rose 1 percent to $73.77 a barrel.

Copper CMCU3, among the most sensitive to trade tensions, rose 0.2 percent from a one-year low hit last week, trading at $6,160 a tonne, having declined for the sixth week in a row last week. Gold prices declined 0.2 percent to $1,229.1 an ounce XAU=.

Emerging market equities .MSCIEF traded down 0.1 percent as the dollar recovered. Strength in the greenback has driven selling in EM stocks this year as the currency puts pressure on emerging economies with large dollar-denominated debt piles.

Source: Read Full Article