Stock Futures nervous after Monday’s rally

Investors say their focus is entirely on central bank officials for clues as to how monetary policy could shift down the road. That will determine their interest in government bonds and inflation-adjusted returns. A flood of easy money by the Federal Reserve since the pandemic last spring has contributed to moderate bond yields and fueled a rally in stock markets for much of the past year.

This phenomenon seemed to have stalled in recent weeks as money managers adjusted their portfolios in anticipation of an economic recovery and a possible rise in inflation, triggering a sell-off in government bonds. Interest rates rose last week as bond prices fell, sparking jitters in stocks. Bond markets have since stabilized and stocks rallied higher on Monday.

“We’re taking a breather after yesterday,” said Fahad Kamal, chief investment officer at Kleinwort Hambros.

“The state of the bond market is driving everything,” he added. “Central banks remain the real pivot in the markets at this point: as long as they continue to buy huge amounts of bonds in the market, the upward movement is [in yields] is capped. “

The yield on 10-year US Treasuries remained relatively unchanged at 1,441%, from 1,444% on Monday. Still, that’s significantly higher than this year’s low on January 4 of 0.915%.

Recent market volatility “shows how hostage we are to leave policy exactly where it is,” said Georgina Taylor, a multi-asset fund manager at Invesco. “There is really no room for tightening up the policy: we still need that to support the economic recovery.”

Investors will review Federal Reserve Gov. Lael Brainard’s comments at an event starting at 1:00 p.m. ET for fresh clues as to how the central bank views bond market movements and the outlook for higher inflation. On Monday she did not talk about the problems when she spoke at another event. Fed officials have suggested so far that the rise in interest rates reflects expectations for an economic recovery.

“We think the days and weeks ahead are likely to be crucial,” and we could see central banks taking steps beyond their verbal interventions, said Peter Schaffrik, a global macro strategist at RBC Capital Markets.

Ahead of market opening, Zoom Video Communications jumped more than 7% after reporting an increase in sales and said it expects continued rapid growth in 2021. Payment company Square climbed more than 4% after it said its industrial bank has begun to operate.

Abroad, the pan-continental Stoxx Europe 600 recorded 0.6%.

“We are definitely seeing a shift towards value” in the stock markets, Mr. Kamal said. “European equities are benefiting from this, many large companies are value linked.”

The sell-off in European sovereign debt markets also continued to decline. The benchmark return on German government bonds fell to minus 0.315%, after hitting minus 0.216% last week.

Among European equities, Ryanair was down more than 2% after the budget carrier said traffic was down 95% in the month of February.

In Asia, most of the important benchmarks closed the day. China’s Shanghai Composite Index and Hong Kong’s Hang Seng both fell 1.2%. According to Deutsche Bank analysts, an official at the People’s Bank of China said he was concerned about the risks posed by high asset prices in international financial markets and the domestic real estate sector.

South Korea’s Kospi index rose 1%, supported by the prospect of a new pandemic spending package.

Write to Anna Hirtenstein at [email protected]