Stocks, U.S. Futures Rise as Oil Falls; Bonds Drop: Markets Wrap

(Bloomberg) — Asian stocks and U.S. equity futures climbed Monday, while Treasures fell, as traders weighed inflation risks from commodity-supply disruptions and braced for the Federal Reserve to hike interest rates this week.

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Japanese shares rose along with S&P 500, Nasdaq 100 and European contracts, providing some respite from selloffs spurred by Russia’s invasion of Ukraine. Investors were parsing efforts at diplomacy to tackle the conflict, as well as comments from a U.S. official that Russia asked China for military ​equipment.

Treasuries extended a rout, taking the five-year U.S. yield above 2% for the first time since May 2019. The Fed on Wednesday is expected to begin a cycle of rate increases to tame inflation, starting with a 25 basis-points move.

Price pressures were already high before the war in Ukraine, and the isolation of resource-rich Russia, stoked commodity costs. Brent crude shed about 2% but remained near $110 a barrel.

The dollar was steady and the yen slipped. Russia’s ruble was indicated slightly stronger versus the greenback. Gold retreated further from $2,000 an ounce.

Last week’s plunge in U.S.-listed Chinese shares threatens to sap the mood in Hong Kong. The Nasdaq Golden Dragon China Index sank 10% on Friday.

The flattening U.S. Treasury yield curve, and a 12% drop in global stocks this year, signal worries that receding stimulus and elevated energy, grain and metal costs may choke the world economic recovery. Investors are also waiting to see if Russia defaults on its international debt after losing access to almost half of its foreign exchange reserves.

“We are experiencing extraordinary volatility in global equities compounded by wavering market sentiment, and the risk of recession intensifies on spiraling commodity prices,” Louise Dudley, portfolio manager for global equities at Federated Hermes, wrote in a note. “We expect ongoing swings in the short term as geopolitical uncertainty over Russian crude persists.”

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