The next steps in monetary policy are unsettling the financial markets

Dax investors remain on guard. The leading German index fell 0.1 percent to 15,191 points in the morning. Investors weighed the pros and cons of Friday’s US labor market numbers. “All in all, they weren’t necessarily so bad that the US Federal Reserve has to postpone the planned throttling of its bond purchases, also known as ‘tapering’, in November,” said Jochen Stanzl, market analyst from trading house CMC Markets. Nevertheless, the consequences of later monetary policy intervention and higher inflation risks are already being discussed. “The rising oil prices could make a later change of course in monetary policy a risk.”

The prospect of a tightening of monetary policy is also putting further pressure on the bond markets. Investors in the euro zone throw bonds from their portfolios; in return, the yields increase significantly. The yield on ten-year government bonds climbed at the start of the week by more than two basis points to minus 0.117 percent, the highest level since May. An interest rate hike by the European Central Bank (ECB) of ten basis points by the end of 2022 is now fully priced in on the money markets.

The expectation that the Bank of England (BoE) would raise interest rates well before the ECB also caused unrest in the bond markets. BoE executive Michael Saunders said a newspaper report over the weekend said households should be prepared for a “much earlier” rate hike in the face of inflationary pressures. British central bank governor Andrew Bailey also expressed concern in an interview at the weekend about inflation exceeding the two percent target.

Yields skyrocket

The yield on two-year British bonds jumped seven basis points to 0.603 percent at the start of trading on Monday. The yield on ten-year British bonds rose to 1.205 percent, marking the highest value since May 2019. The spread between ten-year British bonds and Bunds climbed to 132 basis points, the largest difference since 2016. “Bond yields continue to rise, inflation expectations is increasing and a tightening of monetary policy is becoming more and more likely, ”the ANZ analysts write in a press release. US Treasury bond yields also rose sharply on Friday. The US bond markets will remain closed on Monday due to Columbus Day.

The focus is also on interruptions in supply and rising production costs, as the ANZ analysts continue to explain. “The global chip shortage will continue well into next year and the uneven recovery will further unsettle the situation.” In addition, there is the energy shortage. “The economic situation is far more sober than the optimism that accompanied the early stages of the global recovery.” These factors will affect the upcoming accounting season in the United States. JPMorgan reported on Wednesday, followed by BofA, Morgan Stanley and Citigroup on Thursday and Goldman on Friday.

Asian markets look to reporting season

Asian stocks took off on Monday in anticipation of economic reports. The Nikkei index, which comprises 225 values, was 1.6 percent higher at 28,489 points. The broader Topix index rose 1.5 percent and stood at 1991 points.

The Shanghai stock exchange was 0.3 percent up. The index of the most important companies in Shanghai and Shenzen gained 0.4 percent. In Asian foreign exchange trading, the dollar gained 0.4 percent to 112.67 yen and was down 0.1 percent to 6.4373 yuan. In relation to the Swiss currency, it was quoted 0.2 percent higher at 0.9286 francs. At the same time, the euro remained almost unchanged at 1.1569 dollars and rose 0.1 percent to 1.0744 francs. The pound sterling gained 0.2 percent to $ 1.3640.

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