Global Financial Markets Steady Early Monday Amid Rising Global Bond Yields

We’re looking at a slow start to the financial markets on Monday with shares in Asia muted as traders assess rising global bond yields and fresh data showing that some vaccines reduce transmission of COVID-19. Currencies were mostly steady, suggesting investors haven’t committed to a “risk-on” or “risk-off” scenario yet.

Powell Speaks This Week

Investors may take a pass on taking on risk on Monday with Federal Reserve Chairman Jerome Powell scheduled to testify before Congress on Tuesday and Wednesday. Powell’s testimony will take place Tuesday before the Senate Banking Committee and on Wednesday before the House Financial Services Committee.

Equity Futures Mixed in Asia, US

Equity futures are being pressured slightly in Australia as investors take their cue from a relatively mixed session on Wall Street on Friday, while weaker commodity prices were likely to pressure energy and mining stocks.  A 10 basis point jump in Australian 10-year bond yields also weighed on the market. Shares in Japan are nudging higher.

Commodities Mostly Steady to Better

Commodity futures in the U.S. opened steady to better after gold and crude oil prices posted losses on Friday. Natural gas futures gapped lower on expectations of warmer temperatures and lower demand in the upcoming week.

Dollar Opens Flat

The U.S. Dollar opened Monday’s session flat, supported by weakness in the Japanese Yen. Firm commodity linked-currencies – Australian, New Zealand and Canadian Dollars – kept a lid on the greenback.

Investors Keeping an Eye on Rising Global Yields

Global bond yields are likely to be the main driver of the price action on Monday. A global bond sell-off on expectations of rising inflation as the world recovers from the pandemic has turned the spotlight back on stretched equity valuations.

This only shines a light on this week’s testimony from Federal Reserve Chair Jerome Powell. With investors wondering how much higher the reflation trade will drive up yields, investors will be listening to Powell for any clues that he’s worried by steeper long-term borrowing costs.

“Any further significant upside is going to create increasing levels of concern,” said Simon Ballard, chief economist at First Abu Dhabi Bank. “It’s driven by, on one side, stimulus expectations from Mr. Biden and also the expectation of that continued dovish rhetoric and more acceptance of early stages of inflation from the Fed before even thinking of moving to a tightening bias.”

Vaccine Update

The Pfizer Inc and BioNTech SE Covid-19 vaccine appeared to stop the vast majority of recipients in Israel from infection, providing the first real-world indication that the immunization will curb transmission of the coronavirus.