Treasuries Extend Fall as Powell Adds to Jobs Blow: Markets Wrap

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(Bloomberg) — Treasuries resumed a selloff early Monday as Federal Reserve Chair Jerome Powell warned against the likelihood of a rate cut in March, compounding the effect of Friday’s strong jobs data.

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The 10-year Treasury yield climbed around six basis points in early Asian trading as Powell spoke on CBS’s 60 minutes, compounding heavy selling Friday that added around 14 basis points to the yield.

Powell’s appearance, broadcast Sunday in the US, was recorded prior to jobs data released Friday that showed US companies boosted payrolls in January by the most in a year.

The heavy selling in Treasuries Friday rippled across Asian debt markets, weighing on government bonds in Australia and New Zealand on Monday. The 10-year Australian and New Zealand yields rose by around 10 basis points in early trading. The dollar strengthened against major currencies early Monday.

Investor bets for a rate cut in March by the Fed tumbled Friday to around 20% from almost 40% on Thursday, as economic resilience reduces the likelihood of imminent policy easing.

Despite forecasts for a March cut weakening, “this market still expects five rate cuts this year,” said Ed Yardeni, president of Yardeni Research, in a note. “Fed officials are likely to continue to push back against that notion of so much cutting,” he said.

Australian and South Korean benchmarks both fell more than 1% Monday, while Japanese equities edged higher. Futures contracts for US equities slipped in Asia trading after the S&P 500 Index climbed 1.1% to a new peak on Friday. A strong run of performances for the benchmark comes as February dawns — historically one of the rockiest times of the year for US stocks.

Oil prices advanced following US and UK strikes against Houthi targets over the weekend. The Iran-backed Houthis have vowed to respond. The price of West Texas Intermediate edged higher in opening trade Monday, after falling 7.4% last week, its largest one-week decline since October.

China Vows

Investors will be closely watching Chinese equity markets, which fell Friday to extend a prolonged slump. Following the heavy selling, the China Securities Regulatory Commission vowed on Sunday to prevent abnormal fluctuations, saying it would guide more medium- and long-term funds into the market.

A gauge of US-listed Chinese companies fell more than 1% in New York on Friday, echoing similar declines for mainland China benchmarks.

Elsewhere, former US President Donald Trump also signaled he may impose a tariff on Chinese goods of more than 60% if elected, in a fresh round of hawkish rhetoric aimed at the largest supplier of goods to the US.

Key events this week:

China Caixin Composite PMI, Monday
Eurozone S&P Global Services PMI, PPI, Monday
Australia rate decision, Tuesday
Eurozone retail sales, Tuesday
Germany factory orders, Tuesday
Poland rate decision, Wednesday
Thailand rate decision, Wednesday
Cleveland Fed President Loretta Mester and Philadelphia Fed President Patrick Harker speak, Tuesday
Fed Governor Adriana Kugler, Richmond Fed President Tom Barkin speak, Wednesday
Bank of England Deputy Governor Sarah Breeden speaks, Wednesday
CPI data for Brazil, China, Chile, Mexico, Russia, Thursday
US initial jobless claims, Thursday
US Treasury Secretary Janet Yellen speaks at a Senate banking committee hearing, Thursday
Pakistan general election, Thursday
ECB Chief Economist Philip Lane, ECB Governing Council member Pierre Wunsch speak, Thursday
European Central Bank publishes economic bulletin, Thursday
Canada unemployment, Friday
China aggregate financing, money supply, new yuan loans, Friday
Germany CPI, Friday
Australian Reserve Bank Governor Michele Bullock delivers parliamentary testimony, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.2% as of 9:32 a.m. Tokyo time
Hang Seng futures fell 0.9%
Japan’s Topix rose 0.3%
Australia’s S&P/ASX 200 fell 1.2%

Currencies

The Bloomberg Dollar Spot Index rose 0.3%
The euro fell 0.2% to $1.0770
The Japanese yen fell 0.3% to 148.76 per dollar
The offshore yuan was little changed at 7.2219 per dollar
The Australian dollar fell 0.3% to $0.6490

Cryptocurrencies

Bitcoin fell 0.6% to $42,517.13
Ether fell 0.6% to $2,286.32

Bonds

The yield on 10-year Treasuries advanced six basis points to 4.08%
Japan’s 10-year yield advanced 5.5 basis points to 0.715%
Australia’s 10-year yield advanced 10 basis points to 4.08%

Commodities

West Texas Intermediate crude rose 0.3% to $72.50 a barrel
Spot gold fell 0.2% to $2,034.80 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Garfield Reynolds.