(Bloomberg) — Stocks slid Monday and Treasury yields fell as traders soured on the reflation trade in the wake of a hawkish pivot by the Federal Reserve. The dollar remained at about a two-month high.
Japan led the Asian equity weakness, with the Nikkei 225 down as much as 4%, while European and U.S. stock futures declined. Treasury yields retreated, taking the 30-year rate below 2% for the first time since February, as the prospect of less accommodative U.S. monetary policy buffeted markets.
The Treasury yield curve continued to flatten, unwinding one of this year’s dominant reflation bets. Short-maturity yields surged after Fed official James Bullard said inflation risks may warrant higher interest rates next year, an earlier liftoff than penciled in by many of his colleagues.
Gold stabilized after slumping last week. Oil climbed above $72 a barrel as talks between world powers and Iran dragged on, potentially delaying the return of the latter’s energy exports.
In a light week for economic data, traders will be paying close attention to appearances by Fed policy makers, including Chair Jerome Powell, for any guidance on the winding back of stimulus. In his comments, Bullard also said that the central bank has started discussing tapering asset purchases.
“We have another possibly two years before the Fed starts to take action,” John Woods, Asia Pacific chief investment officer at Credit Suisse Group AG, said on Bloomberg Television. “So I do anticipate there will be a period of choppy, sideways trading as the volatility associated with this debate in the Fed is reflected in pricing, but absolutely I take the view that yields will tick a little higher.”
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Here are some events to watch this week:
St. Louis Fed President James Bullard, Dallas Fed President Robert Kaplan and New York Fed President John Williams are among Fed speakers, as traders weigh up the central bank’s messaging shift, which has the potential to whiplash assetsEuropean Central Bank President Christine Lagarde addresses the European Parliament MondayFed Chair Jerome Powell testifies at a House Subcommittee hearing on the Fed’s pandemic emergency lending and its asset purchase programs TuesdayBank of England interest rate decision Thursday
These are some of the main moves in financial markets:
Stocks
S&P 500 futures slipped 0.6% as of 12:44 p.m. in Tokyo. The gauge fell 1.3% FridayNasdaq 100 futures were 0.3% lower. The index fell 0.8%Japan’s Topix index shed 2.6%Australia’s S&P/ASX 200 Index dropped 1.9%South Korea’s Kospi index fell 1.2%Hong Kong’s Hang Seng Index declined 1.4%China’s Shanghai Composite Index retreated 0.2%Euro Stoxx 50 futures tumbled 1%
Currencies
The yen advanced 0.4% to 109.77 per dollarThe offshore yuan traded at 6.4764 per dollar, down 0.2%The Bloomberg Dollar Spot Index rose 0.1%The euro was at $1.1849, sliding 0.1%
Bonds
The yield on 10-year Treasuries dipped seven basis points to 1.37%Australia’s 10-year yield fell eight basis points to 1.51%
Commodities
West Texas Intermediate crude rose 0.6% to $72.06 a barrelGold rose 0.6% to $1,775.12 an ounce
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