Bond rout boosts dollar, hits stocks, stimulus faces issues, end-of-month flows eyed

The sell-off in bonds has spiraled out of control, sending triggering a similar stampede out of stocks and causing worries. President Biden’s stimulus hit a snag due to a ruling against the minimum wage. End-of-month flows and US economic figures are eyed.

Quick reflation: Stocks were able to stomach higher bond yields while they were rising slowly, but the surge of basis points in the benchmark ten-year Treasury yield to 1.61% already triggered a sell-off in global stocks. As of Friday, returns have fallen back, with the ten-year yield dipping below 1.50%.

Investors are repricing the chances of a rate hike by the Federal Reserve, shrugging off soothing words from Chair Jerome Powell earlier in the week and from other members such as Esther George, the most hawkish member of the bank.

Growth prospects are partially based on President Joe Biden’s proposed $1.9 trillion stimulus package – but that has suffered a blow. Elizabeth MacDonough, the Senate parliamentarian, ruled that a hike in the minimum wage cannot be included in the package. It is unclear how Democrats, divided on the topic, will proceed.

Fears that rapid growth would lead to overheating are also behind the rout. Friday’s publications include Personal Spending, Personal Income, and the Core Personal Consumption Expenditure (Core PCE), the Fed’s preferred measure of inflation. It is likely to show that price development remains subdued.

Thursday’s US data releases were mixed, with Durable Goods Orders beating on the headline but missing on a core measure. Jobless claims dropped, but statistics may have been skewed by the storm in southern states.

US Durable Goods Orders and Initial Claims Is the Treasury market right?

The US dollar has been the main beneficiary, surging against the pound, yen and commodity currencies – despite oil prices holding above their highs. The euro stands out by holding up relatively well, partly due to rising bond yields in the old continent.

Intervention: Phillip Lane, the European Central Bank’s Chief Economist, warned about this increase and hinted his institution is ready to act. The Bank of Japan and officials in Korea made similar warnings while the Reserve Bank of Australia took one step forward and bought bonds in markets.

Bitcoin has been on the back foot, trading toward the lower end of its wide weekly range, around $46,000. Ethereum is changing hands below $1,500 and XRP under $0.50.

Vaccines: EU leaders advanced plans for vaccine passports and pledged to speed up the rollout of immunization. AstraZeneca promised to ramp up its supply of jabs. The US FDA is set to give emergency authorization to Johnson and Johnson’s single-shot vaccine later today, after a committee gave its nod. FedEx and UPS are attempting to accelerate the pace of dose supplies.

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