Asia shares begin cautiously, Treasury yields hold climbing

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A man stands on an overpass with an electronic board showing the Shanghai and Shenzhen stock indices at Lujiazui financial district in Shanghai, China January 6, 2021. REUTERS/Aly Song//File Photo

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  • >Asian equity markets :
  • Nikkei Flat, China markets on vacation
  • Talk of further sanctions against Russia, end of gas sales
  • Treasury yield curve reverses into recession warning

SYDNEY, April 4 (Reuters) – Asian stock markets got off to a cautious start on Monday amid talk of even more sanctions against Russia over its invasion of Ukraine, while bond markets continued to sound the risk of a hard landing for the US economy as the short-term yields rose.

A public holiday in China led to sluggish trading, and MSCI’s broadest index of Asia Pacific equities outside Japan (.MIAPJ0000PUS) fell 0.1%.

Japan’s Nikkei (.N225) was flat, while S&P 500 stock futures fell 0.2% and Nasdaq futures 0.3%.

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As peace talks between Russia and Ukraine dragged on, reports of Russian atrocities led Germany to say the West would agree to impose more sanctions in the coming days. Continue reading

Germany’s defense minister also said the European Union must discuss an import ban on Russian gas, a move that would likely drive up prices even further while forcing some sort of energy rationing in Europe. Continue reading

Data released last week showed that EU inflation had already risen to a record high, putting pressure on the European Central Bank to rein in runaway prices even as growth slows sharply.

“It really looks like it’s time for the ECB to act,” warned analysts at ANZ in a statement. “While the ECB will be cautious about raising rates, it certainly looks like it should act sooner to end its QE program.”

The US Federal Reserve has already hiked and is set to do much more after Friday’s solid March payroll report. There are plenty of Fed officials set to speak at public events this week with the prospect of more aggressive noise, and minutes from the latest policy meeting are due Wednesday.

“We now expect the Fed to hike 50 basis points in May, June and July before slowing the pace somewhat by raising 25 basis points in September, November and December,” said Kevin Cummins, chief US economist at NatWest Markets.

“This will bring the overnight rate into the restrictive zone earlier, at 2.50-2.75% by year-end 2022.”

Investors responded by hammering on short-dated government bonds and continuing to invert the yield curve as the market priced in the risk that all of this tightening would eventually lead to a recession.

On Monday, two-year bond yields surged to a three-year high of 2.49% and well above the 10-year at 2.410%.

The jump in yields has supported the US dollar, particularly against the yen, as the Bank of Japan repeatedly traded last week to keep bond yields close to zero.

The dollar was trading firm at 122.63 yen, not far off a recent seven-year high of 125.10. The euro drifted to $1.1041 and could fall further if the EU does act to halt gas supplies from Russia, which is calling its action in Ukraine a “special operation”.

The dollar index was last at 98.617 after bouncing between 97.681 and 99.377 recently.

The global rise in bond yields weighed on non-yielding gold, and the metal remained stuck at $1,923 an ounce.

Meanwhile, oil prices fell after the United Arab Emirates and the Iran-allied Houthi group welcomed a ceasefire that would halt military operations on the Saudi-Yemeni border, easing some concerns about potential supply problems.

Oil slipped 13% last week – the biggest weekly drop in two years – after US President Joe Biden announced the biggest release of US oil reserves yet.

Brent was last trading 86 cents lower at $103.53, while US crude was down 80 cents at $98.47.

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Editing by Kenneth Maxwell

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