US equity futures fall; Treasuries stabilise

Bloomberg

Stocks in Europe trimmed gains and US index futures dipped as investors took stock of the outlook for monetary policy ahead of key inflation data later this week. Treasury yields and the dollar were stable.
The Stoxx Europe 600 index, coming off its longest streak of weekly losses in almost a year, was up around 0.3%, with retail and basic-recourses shares outperforming. S&P 500 and Nasdaq 100 contracts fluctuated following Friday’s bounce on Wall Street. The 10-year Treasury yield was little changed near a two-year high and bunds were steady as the global bond rout showed signs of easing, though yields on peripheral European debt ticked higher. The dollar was little changed, while the euro snapped a six-day strengthening run. Crude oil dipped below $92 a barrel.
Investors are grappling with the prospect of the steepest monetary tightening cycle since the 1990s, with markets pricing in more than five quarter-point Federal Reserve interest-rate hikes in 2022 following a strong US jobs report. The US inflation report this week could lead to more market volatility. A reading north of 7%, the highest since the early 1980s, is expected.
“The repricing of Fed rate hikes has lost momentum as investors await more clarity on the impact of the pandemic and soaring energy prices on the US and Fed outlook,” Credit Agricole strategists including Valentin Marinov wrote in a note. “Looking ahead, focus will be on the US CPI and the January Fed minutes. it would take fairly positive inflation surprises and hawkish FOMC signals to revive the dollar rally in the near term.”
A Hong Kong technology gauge retreated, sapped by Alibaba Group Holding Ltd. on speculation SoftBank Group Corp. may sell some of its shares in the firm.
The Fed is in a difficult spot, “trying to manage the real economy where we see that hot inflation and the financial economy, which quivers every time we talk about rate rises,” Karen Harris, Bain & Co. global head of macro research, said on Bloomberg Television.
Elsewhere, European Central Bank Governing Council Member Klaas Knot said he expects a rate increase as early as in the fourth quarter. The ECB last week made a hawkish pivot, with President Christine Lagarde no longer excluding a rate hike this year.
That has pressured European sovereign debt.
“The momentum trade has been to short bonds and many are now fearing higher bond yields will really start to bite in equity land,” Chris Weston, head of research with Pepperstone Financial Pty Ltd., wrote in a note.
Meanwhile, Bitcoin climbed above $42,000 to the highest in over two weeks.