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Opening Call:
Futures pointed to muted moves for stocks, while government bonds extended losses, as investors awaited inflation data and the start of earnings season.
Rising yields at the start of 2022 have sent a shudder through tech stocks. Pushing yields up are indications that the Federal Reserve could raise short-term interest rates in March and begin to shrink its holdings of bonds and other assets soon afterward.
Inflation data due Wednesday will be keenly watched as investors seek to predict when the Fed will begin to raise borrowing costs. Monthly consumer prices are expected to have risen more than 7% from a year earlier, for the first time since 1982.
Later this week, fourth-quarter earnings season kicks off at major U.S. financial firms, with JPMorgan Chase, Citigroup, Wells Fargo and BlackRock due to file results. Many investors are pushing money into bank stocks, figuring they stand to profit from a rise in interest rates.
Among them is Hani Redha, a multiasset fund manager at PineBridge Investments. He said the New York-based investment firm has cut its ownership of tech stocks and Treasurys while boosting cash holdings and exposure to financial companies.
"Equities are down and bonds are down too," Mr. Redha said. "At least for a while, even cash is better than owning risk assets."
Overseas stock markets were mixed. The Stoxx Europe 600 slipped, weighed down by shares of real estate and tech companies. Shares in Atos sank 17% after the French information-technology firm said 2021 results lagged expectations due to project delays and supply-chain challenges.
Forex:
The dollar recovered following declines Friday when December's U.S. nonfarm payrolls data showed lower-than-expected jobs growth.
The Federal Reserve is unlikely to be concerned by softer employment growth as the underlying trend remains favorable, with further improvement in the labor market expected, MUFG Bank currency analyst Lee Hardman said.
The unemployment rate fell 0.3 percentage points to 3.9% in December, just above the pre-coronavirus low of 3.5% and broadly in line with the Fed's estimates for full employment, he said.
"A further decline in the unemployment rate in the coming months should result in the labor market meeting the Fed's conditions to begin raising rates as soon as at the March FOMC meeting."
The Russian ruble rose as talks between U.S. and Russia about the build-up of Russian troops along Ukraine's border get underway.
Expectations of a breakthrough in lowering tensions are unlikely to be high, ING analysts said. For example, it will be difficult for NATO to promise that it will refuse to accept membership applications from Ukraine as demanded by Russia, they said.
"Yet we see the RUB holding its recovery from last week's USD/RUB spike high at 77.30." As Russian exporters return from their New Year holidays, USD/RUB should return to the 73-75 range, backed by a "very hawkish" Russian central bank and three-month RUB implied yields at 8.5%, they said.
Bonds:
The yield on benchmark 10-year Treasury notes-which moves inversely to their price-rose to 1.795% from 1.769% Friday. Friday's closing level was the highest since January 2020, when yields tumbled at the start of the pandemic.
Ten-year U.S. Treasury and German Bund yields are on track for Societe Generale's respective targets of 1.80% and 0% in 1Q, the French bank's rates strategists said.
"In the coming months, the focus will remain on the next Fed policy steps, so rates market volatility should be driven by U.S. Treasuries," they added.
In the eurozone, near-term inflation prints will likely be high and volatile, maintaining pressure on the European Central Bank to continue preparing policy normalization, Societe Generale said.
"After a volatile 1H, the evolution of the inflation outlook in 2H22 will be a key determining factor for medium-term expectations of ECB policy."
Commodities:
Oil prices were flat as fresh supply from Kazakhstan and Libya comes back online. Libyan oil production increased by 200,000 barrels a day to 900,000 barrels, after a major pipeline was restored, according to the nation's energy minister.
Meanwhile in Kazakhstan, after major protests disrupted production last week, production was gradually returning to normal levels, the operator of the country's largest oil field said.
U.S. natural-gas prices rose 4.2% to $3.88 per million British thermal units. Cold weather in the Midwest and eastern U.S. early this week will likely boost demand for the fuel, according to analysts at NatGas Weather.
Gold prices are likely to decline this year as bond yields and the dollar rise, though concerns about inflation and Covid-19 variants will slow losses, UBS said.
The bank is forecasting the precious metal to end 2022 at $1,650 a troy ounce but expects it to end the current quarter little changed.
"Currently, omicron and inflation risks are keeping some investors holding onto their gold investments, but we think further upside to U.S. real yields and a stronger U.S. dollar will undermine the supportive factors by 2Q22," the bank's commodities strategists said.
Aluminum prices rose after a major French smelter said it would cut output because of soaring electricity prices. The smelter at Dunkirk, which has a capacity of 285,000 tons a year, is to cut production by a total of 15% this week.
The smelter is the latest in Europe to take such steps as a shortage of natural gas drives up energy prices.
Aluminum smelters are particularly exposed to rising electricity prices as their production process is very energy-intensive. Meanwhile, copper prices also rose, inching up 0.1% and nickel gained 0.8%.
TODAY'S TOP HEADLINES
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