U.S. Futures Steady; Bonds Pause Rally as Fed Eyed: Markets Wrap

(Bloomberg) — The rally in bond markets lost steam as investors prepared for a key Federal Reserve meeting later in the week, while U.S. equity futures were little changed.

The Treasury 10-year yield rose to 1.46% after hitting three-month lows on Thursday amid the biggest weekly slide since December. French and German government bond peers also reversed course with yields turning higher. S&P 500 futures pared gains after the gauge hit a new record Friday. European equities also backpedaled from an earlier advance.

Investors are on the lookout for signals from the Fed about a timetable for scaling back emergency monetary stimulus. Expectations are that the central bank will reaffirm the pace of bond purchases this week, even if it delivers projections for interest-rate liftoff in 2023, according to economists surveyed by Bloomberg. The decision is due Wednesday.

With anxiety about an imminent taper fading, bond yields have fallen to the bottom of recent trading ranges, providing a green light for risk-on sentiment that may last until at least August, according to Mizuho International Plc strategists.

“The overarching theme should be of an environment for investors to put cash to work,” Mizuho’s head of multi-asset strategy Peter Chatwell and colleagues wrote in a note to clients. “With this backdrop most asset classes should be able to at least hold ground, if not rally. We doubt any major change in Fed rhetoric will materialize before” the Jackson Hole symposium in August.

Oil extended a run of three weekly gains on optimism that economic reopenings will boost summer demand in the U.S. and Europe. Hedge funds boosted net-bullish positions to a nearly three-year high, according to the latest Commodity Futures Trading Commission data.

In pre-market trading, Novavax Inc. soared 19% after it revealed late-stage data showed its vaccine candidate was 90% effective against the virus. Rival Moderna Inc. dropped 2.2%.

Bitcoin jumped over the weekend after Elon Musk said Tesla would resume transactions with the cryptocurrency when mining it is done with more clean energy.

The dollar was steady in the wake of a Group-of-Seven leadership meeting that emphasized unity.

For market commentary, follow the MLIV blog.

Here are some key events to watch this week:

NATO holds a summit on MondayAn EU-U.S. summit takes place in Brussels on TuesdayData on U.S. industrial production, producer prices and retail sales come TuesdayThe Federal Open Market Committee rate decision comes on Wednesday, with a news conference from Jerome Powell afterU.S. President Joe Biden and Russia’s Vladimir Putin meet Wednesday in GenevaU.S. Treasury Secretary Janet Yellen testifies before a House panel Thursday on the federal budgetRate decisions come from Switzerland and Norway on ThursdayThe Bank of Japan’s monetary policy decision is on Friday

These are some of the main moves in markets:

Stocks

Futures on the S&P 500 Index were little changed at 8:26 a.m. New York time.The Stoxx Europe 600 Index gained 0.1%.The MSCI Asia Pacific Index was little changed.The MSCI Emerging Market Index fell 0.1%.

Currencies

The Bloomberg Dollar Spot Index was little changed.The euro was little changed at $1.2115.The British pound was little changed at $1.4108.The onshore yuan weakened 0.1% to 6.399 per dollar.The Japanese yen weakened 0.1% to 109.75 per dollar.

Bonds

The yield on 10-year Treasuries jumped one basis point to 1.46%.The yield on two-year Treasuries gained less than one basis point to 0.15%.Germany’s 10-year yield increased less than one basis point to -0.27%.Japan’s 10-year yield gained one basis point to 0.041%.Britain’s 10-year yield climbed less than one basis point to 0.709%.

Commodities

West Texas Intermediate crude increased 0.9% to $71.53 a barrel.Brent crude climbed 0.9% to $73.32 a barrel.Gold weakened 1.5% to $1,850.09 an ounce.

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