Bond bashing resumes, euro applauds Macron-Le Pen clash

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LONDON — Bond markets suffered another strong sell-off on Thursday as investors bet on aggressive hikes in global interest rates, while the euro climbed after French President Emmanuel Macron boosted his re-election hopes at the weekend. -end during a heated televised debate.

The MSCI index of global stocks recorded only modest movement on the prospect of higher global borrowing costs, but shares in Paris jumped nearly 2% after Wednesday night’s clash between Macron and his far-right rival Marine Le Pen.

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Although Le Pen appeared more polite and composed than during a televised duel for the presidency in 2017, Macron nudged her about her ties to Russian leadership, her plans for the economy and her policy for the European Union. .

A poll showed 59% of viewers thought Macron had been the most convincing in the nearly three-hour tussle, suggesting his 56%-44% lead in the race ahead of the debate had at least been maintained ahead of the second Sunday round.

“Yes, Emmanuel Macron won but his opponent avoided a repeat of the disaster of the last time”, declared on Twitter Gérard Araud, former ambassador of France. “This debate doesn’t disqualify her like the one in 2017, but it doesn’t help her close the gap either.”

Elsewhere, investors have once again focused on the war in Ukraine and how quickly interest rates will need to rise around the world as the conflict with Russia adds to already intense global inflationary pressures.

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As European Central Bank and Federal Reserve chiefs Christine Lagarde and Jerome Powell also spoke at an International Monetary Fund panel later, German 10-year Bund yields were heading back toward a high. seven-year US Treasuries approached 2.9% again, while Italian yields hit their highest since the initial COVID panic of March 2020.

Markets expect another rate hike of at least half a percentage point from the US Fed next month, while an ECB policymaker said on Wednesday it could start raising euro zone rates from July.

Citi’s global markets strategist Matt King said pressure in markets also comes from quantitative tightening, or QT – the process of years of frenzied central bank printing of central bank money that is reversing.

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This process is about to begin and over the next year he estimates that about half a trillion dollars will be sucked out of the global financial system by the Fed alone.

“Don’t look at actual returns, look at cash flow,” King said, adding that a rough calculation was that $1 trillion of QT would drop global stocks by about 10%.

“These flows are simply too large for markets to anticipate in advance,” he said.

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US stock futures were pointing higher as shares of electric car maker Tesla jumped nearly 8% in the jockey before the bell after strong results and as United Airlines forecast a surprise profit , which also inflated the shares of other carriers.

Asian markets, on the other hand, saw Chinese and Hong Kong equities hit monthly lows overnight and the Chinese yuan also fell to its lowest level in six months, as authorities in Shanghai said tight restrictions linked to the COVID-19 would remain in place.

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Chinese blue chips lost 1.8% while Hong Kong shares fell 2%, both falling to their lowest level since mid-March. The spot yuan touched 6.4478 to the dollar, its lowest level since October.

The declines had led to a 0.6% drop in MSCI’s broadest index of Asia-Pacific stocks outside Japan, despite gains in Korea and Australia, where the local benchmark rose 0.4 % to hit a near-record high.

Japan’s Nikkei also jumped 1.2% as the yen hovered near its recent 20-year low.

Nomura analysts said they were cutting their forecast for China’s second-quarter GDP growth to 1.8% year-on-year from 3.4%, “due to rapidly deteriorating high-frequency activity data in April, the growing number of cities under full and partial lockdown, severe logistical disruptions and signs that Beijing is unlikely to end its zero COVID strategy soon.

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A prolonged slowdown in China would have substantial global spillovers, IMF Managing Director Kristalina Georgieva said Thursday, while adding that Beijing has room to adjust policy to provide support.

Deutsche Bank chief economist David Folkerts-Landau, meanwhile, warned that a late-2023 U.S. recession was now a baseline scenario.

“Prepare for a hard landing,” he said, signaling the possibility of the fed funds rate in the 4.5-5% range and eurozone rates at 2-2.5 %.

Deutsche Bank also noted that the magnitude of Fed hikes planned for December hit a new high of 227 basis points (bps). Added to last month’s 25 basis point hike, that implies the Fed will tighten more than 260 basis points for the year as a whole – more than the 250 basis points seen in 1994.

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Yields on the 10-year Treasury dipped 11 basis points on Wednesday, but were back up to 2.874% in Europe. Nasdaq futures also rose more than half a percent as bullish Tesla earnings helped ease the stress of Netflix’s sharp drop this week.

The streaming company’s losses now stand at 62% this year, making it the worst performance for the entire S&P 500 so far this year.

In the currency markets, the euro rose 0.6% to rise above $1.09 again and also recorded gains against the yen, Swiss franc and Norwegian krone.

The dollar, meanwhile, gained 0.2% against the yen which hit a 20-year low in recent days, hurt by the Bank of Japan’s promise to keep government bond yields at a low. low despite increases elsewhere in the world.

“The euro is all about the ECB drumbeat for a July hike,” said Kenneth Broux, FX strategist at Societe Generale in London.

Oil, meanwhile, firmed in the choppy commodity trade as concerns over supply due to a possible European Union ban on Russian oil came to the fore. Russian forces stepped up their attacks in eastern Ukraine on Thursday.

Brent crude futures rose 1.54% to $108.44 a barrel, although European natural gas prices fell 1.2% to 96.5 euros.

(Additional reporting by Alun John in Hong Kong and Dhara Ranasinghe in London Editing by Catherine Evans and Mark Potter)

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