Europe stocks fall amid lockdown woes; bonds rise

European stocks dropped on Tuesday as a planned lockdown in Germany amid a resurgence of virus cases cast doubt on the region’s nascent economic recovery.

The Stoxx 600 Index fell 0.5 per cent, dragged lower by travel shares and cyclicals as Chancellor Angela Merkel put Germany into hard lockdown over Easter to try to defuse another wave of infections. The move come amid signs that progress against the pandemic is stalling as global deaths and cases creep higher. The euro slipped and regional bonds advanced.

Turmoil in Turkish assets continued in the wake of the central bank chief’s surprise dismissal over the weekend, with a drop in the main stock index triggering a circuit breaker. U.S. equity futures retreated alongside most Asian stocks, while the dollar strengthened.

The 10-year U.S. Treasury yield subsided further from the highest in about 14 months amid hopes of improved demand in this week’s heavy round of sales. The offerings include a seven-year note, a maturity that fared poorly in last month’s auction, sending benchmark yields sharply higher.

While a fresh lockdown in Europe’s largest economy is putting investors on the back foot, the stabilization in bond yields is providing some relief against fears that heavy U.S. spending could reignite inflation and force tighter central-bank policy. All eyes turn to Washington later today, where Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell will speak on the pandemic response.

“Risk assets can live with higher yields during the recovery stage,” just not an inflationary spike, said Dwyfor Evans, State Street Global Markets’ head of Asia-Pacific macro strategy. “We’re not there yet, so this is still really the beginning of this reflationary stage in terms of the business cycle — that’s what’s driving equities at the moment.”

Elsewhere, WTI crude oil dropped below US$61 a barrel on concerns about the near-term demand outlook.

These are some key events to watch this week:

  • Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell make their first joint appearance before the U.S. House Financial Services committee Tuesday.
  • The U.S. Treasury holds auctions of two-, five- and seven-year debt.
  • EIA crude oil inventory report on Wednesday.
  • U.S. personal income and spending data on Friday.
  • These are some of the main moves in financial markets:

Stocks

  • Futures on the S&P 500 Index decreased 0.4 per cent as of 8:19 a.m. London time.
  • The Stoxx Europe 600 Index dipped 0.5 per cent.
  • The MSCI Asia Pacific Index dipped 0.7 per cent.
  • The MSCI Emerging Market Index declined 0.7 per cent.

Currencies

  • The Bloomberg Dollar Spot Index jumped 0.3 per cent.
  • The euro fell 0.3 per cent to US$1.1902.
  • The British pound declined 0.2 per cent to US$1.3831.
  • The onshore yuan was little changed at 6.511 per dollar.
  • The Japanese yen strengthened 0.1 per cent to 108.76 per dollar.

Bonds

  • The yield on 10-year Treasuries fell five basis points to 1.65 per cent.
  • The yield on two-year Treasuries dipped less than one basis point to 0.14 per cent.
  • Germany’s 10-year yield fell three basis points to -0.34 per cent.
  • Britain’s 10-year yield declined two basis points to 0.79 per cent.
  • Japan’s 10-year yield decreased less than one basis point to 0.082 per cent.

Commodities

  • West Texas Intermediate crude declined 1.6 per cent to US$60.58 a barrel.
  • Brent crude dipped 1.6 per cent to US$63.60 a barrel.
  • Gold weakened 0.1 per cent to US$1,737.83 an ounce.

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