Aurelia Butler

Investing.com — The Kremlin digs in after President Joe Biden’s gaffe calling for Vladimir Putin’s removal from power. Bonds continue to sell off as the yield curve points to a growth slowdown. Tesla (NASDAQ:TSLA) is looking at a stock split while Apple (NASDAQ:AAPL) is reportedly looking at cutting production of some products due to weakening demand. Bitcoin closes in on a new high for the year and oil falls as Shanghai locks down (in stages) for a week. Here’s what you need to know in financial markets on Monday, 28th March. 1. Kremlin digs in after Biden comments; Zelensky talks peace conditionsHopes for a quick peace in Ukraine took a blow at the weekend after U.S. President Joe Biden called for the removal of Russia’s Vladimir Putin from power. While his comments at the end of a speech in Poland pledging support for Ukraine’s independence were unscripted, they were clearly intentional.The comments are likely to strengthen suspicions, both in Russia and elsewhere, of a secret U.S. agenda to pursue regime change, although the State Department and the White House both stated later that this is not the case. Separately, Ukrainian President Volodymyr Zelensky told independent Russian reporters that he would be willing to accept permanent neutrality as a basis for peace, as long as it was guaranteed by third parties. He also said he would be willing to have separate negotiations about the status of eastern Ukraine and Crimea, removing a further obstacle to peace talks. The Kremlin poured cold water on such suggestions, a spokesman saying that a meeting between the two presidents would be “counter-productive” although it noted that diplomats will resume their meetings in Istanbul on Tuesday.2. Bond selloff continues, flattening curve furtherTwo-year U.S. bond yields hit their highest level in nearly three years overnight, as the repricing of Federal Reserve policy moves in response to rampant inflation continued.The United States 2-Year Treasury yield touched 2.41% before easing to 2.37% by 6 AM ET (10:00 GMT), still up 7 basis points on the day. Ten-year yields however, were largely stable, rising only 1 basis point to 2.50%. As such, the spread between 2- and 10-year yields has narrowed to only 13 basis points, the least since the start of the pandemic. Flatter and/or inverted yield curves typically tend to indicate a growth slowdown in the future. However, their usefulness as a predictor of recessions is often disputed.Analysts have been falling over themselves to revise their expectations for Fed rate hikes higher after a string of comments last week from Chair Jerome Powell and others warning of the possible need for half-point rises rather than the quarter-point ones previously suggested.3. Stocks set to open mixed; Apple, Tesla news in focusU.S. stock markets are poised to open mixed later, with concerns about the rapid selloff in bonds – which will raise capital costs for the economy at large – finally starting to weigh on equity markets that had defied gravity during the rout last week.By 6:20 AM ET, Dow Jones futures, S&P 500 futures and Nasdaq 100 futures were all effectively flat, after two straight weeks of solid gains. Heavyweights look likely to dominate proceedings later, with Apple stock down 1.8% on a report that it will cut production of Air Pods in response to weakening consumer demand, while Tesla stock was up 5% after the electric vehicle maker said it wants to carry out a stock split, which could make the stock more attractive to small investors.Elsewhere, wholesale inventories data for February are due at 8:30 AM ET.4. Bitcoin close to 2022 high as BoJ allows yen to weakenBitcoin closed in on a new high for 2022, as action from the Bank of Japan revived one of the classic arguments for holding crypto rather than fiat currencies. By 6:20 it was at $47,204, up 6% on the day.The BoJ intervened heavily in Japanese bond markets overnight, saying it would buy unlimited amounts of bonds over the next four days to keep long-term yields at its policy target rate. As such, the BoJ strengthened suspicions that it prefers to devalue the yen rather than contain inflation. The yen hit a six-year low of 125.08 against the dollar as a result of the intervention. The BoJ’s action backs up a string of comments in the last week by BoJ officials that was conspicuously relaxed about the yen’s decline on the FX markets.  5. Oil falls on Shanghai lockdownCrude oil prices fell sharply on fears for the trajectory of Chinese demand, as the city of Shanghai announced rolling lockdowns for mass Covid-19 testing over the next week that will affect 25 million people.By 6:30 AM ET, U.S. crude futures were down 4.2% at $109.11 a barrel, while Brent Futures, the global benchmark, were around $113.03 a barrel, down 3.7%.The measures will not close the city’s port, or indeed many of its factories (although Tesla’s factory in Shanghai is among those that will stay closed for now). However, the measures, which will be staggered across the city, will ban private car traffic where they are in place. More

Shorter-dated US government bonds dropped in price on Monday in the latest sign of how investors are expecting the Federal Reserve to aggressively tighten monetary policy in an attempt to rein in inflation.The yield on the two-year Treasury note, which moves inversely to its price, rose 0.09 percentage points in European morning trading to 2.39 per cent, leaving it up more than 1.6 percentage points since the end of last year.Short-term bonds have sold off more vigorously this year than ones at the longer end of the spectrum as expectations for a series of Fed rate rises in the coming months weigh on the longer-term economic growth forecast.“The market is pricing a significant overshoot in inflation and central banks being forced to react strongly, triggering an economic slowdown,” said Luca Paolini, chief strategist at Pictet Asset Management. In a sign of those concerns, the five-year Treasury yield on Monday rose above the 30-year yield for the first time since 2006. A so-called yield-curve inversion of this nature reflects concerns that the Fed’s attempt to battle inflation could over time depress growth or even cause a recession.Consumer price inflation in the US hit a 40-year high of 7.9 per cent in February, with analysts expecting the surge to continue as price disruptions caused by industries reopening from coronavirus lockdowns are exacerbated by the Ukraine war causing soaring commodity costs.“Geopolitical uncertainty has caused energy prices to surge, has put pressure on other raw materials and has caused further disruptions to supply chains,” said Sonal Desai, fixed income chief investment officer at Franklin Templeton. “To bring inflation under control, in my view, the Fed will need to implement a much more aggressive policy tightening than it currently envisions.”

Citigroup analysts said last week the US central bank was likely to raise borrowing costs by half a percentage point at every one of its monetary policy meetings from May to September. Goldman Sachs analysts said on Friday that they now expected the 10-year Treasury yield, which stood at just over 2.5 per cent on Monday, to hit 2.7 per cent by the end of 2022.Ructions in the US Treasury market also spread to eurozone bonds. Germany’s five-year bond yield rose as much as 0.1 percentage points to 0.429 per cent, the highest level since 2014. Europe’s Stoxx 600 share index rose 0.7 per cent as investors cautiously welcomed a declaration by Ukrainian president Volodymyr Zelensky that the nation would declare neutrality and abandon its plan to join Nato if Russia withdrew its troops. An index of European bank stocks rose 2.4 per cent. The price of Brent crude oil fell 3.3 per cent to $116.92 a barrel, still about a fifth above its closing level of February 23, on the eve of Russia’s invasion. Futures markets implied Wall Street’s S&P 500 share index would slip 0.3 per cent in early New York dealings. Asian stock markets were mixed, with Japan’s Nikkei 225 closing 0.7 per cent lower and Hong Kong’s Hang Seng adding 1.3 per cent.The dollar rose 1.5 per cent against the Japanese yen, with one unit of the US currency now buying ¥123.4, its highest level since 2015 as traders bet on the Bank of Japan maintaining loose monetary policy while the Fed raises interest rates. More

WASHINGTON (Reuters) -U.S. President Joe Biden is expected on Monday to ask Congress for record peacetime military spending while raising taxes for billionaires and projecting lower government deficits.Biden’s budget proposal for the fiscal year starting Oct. 1 lays out his administration’s priorities but it is merely a wish list as lawmakers on Capitol Hill make the final decisions on budget matters.The document offers fresh insight into Biden’s thinking as he attempts to halt Russia’s invasion of Ukraine and prepares for a Nov. 8 midterm election that could see his Democratic Party lose its control of Congress.”The president’s budget will reflect three important values: fiscal responsibility, safety and security at home and abroad, and a commitment to building a better America,” a White House official said.”The budget will help keep our communities safe by putting more cops on the beat for community policing, fighting gun crime, and investing in crime prevention and community violence interventions,” the official said.Forced by disagreements within his own party to pump the brakes and instead continue negotiating on vast swathes of his domestic “Build Back Better” agenda, Biden is unlikely to include line items for all of his ideas on how to improve the country’s environment, healthcare, education, housing infrastructure and manufacturing competitiveness.But he will use the opportunity to throw his explicit public support for the first time behind a new tax requiring billionaires to pay at least 20% of their income in taxes, including on the gains on investments that have not been sold.The White House says the tax would apply to 0.01% of American households, those worth over $100 million, and that more than half of the new revenue would come from households worth more than $1 billion.The measure would reduce the government deficit by $360 billion over the next decade, they said. Biden has long pushed the message that the U.S. tax system rewards the wealthy too much and that the rich should pony up for more social services.Two sources told Reuters in February that about $773 billion would be made available for the Department of Defense, which in combination with other spending would lead to a total national security budget above $800 billion.Russia’s Feb. 24 invasion of Ukraine has intensified concerns about European security, while the Biden administration continues to invest in research and development on hypersonic missiles and other modern capabilities. The United States is not directly engaged against Russia in the Ukraine war but is giving Kyiv weapons and extensive assistance. Working with European allies, it has also imposed heavy economic sanctions against Russia.Axios news outlet on Monday reported that the plan includes more than $32 billion to tackle crime.Biden also plans to propose new restrictions on stock buybacks, The New York Times reported separately.The budget will also project a 2022 deficit of more than $1.3 trillion lower than last year, as the U.S. economy rebounds from the COVID-19 recession and Biden’s administration puts more focus on fiscal sustainability.The U.S. federal government, on the hook for rising healthcare and social spending, especially for the elderly, has spent more money than it has taken for each of the last 20 years. More

TOKYO (Reuters) -Struggling to swim against the tide taking interest rates higher globally, the Bank of Japan staunchly defended its 0.25% yield cap on Monday by offering to buy an unlimited amount of government bonds for the first four days of this week.The BOJ’s defence of its ultra-loose policy pushed the yen to a six-year low of 124 to the dollar on Monday, adding to the problems Japan’s economy is facing from already surging costs for fuel and raw material imports.Under pressure from a steady rise in yields, the BOJ launched its defence by making two offers in a single day to purchase 10-year Japanese government bond (JGB) in unlimited amounts at 0.25%.The central bank then said it would make the same unlimited offer for the next three days, to make sure investors received the message loud and clear, but some economists believed the central bank’s grip on yield curve control was at risk of slipping.”The power of the BOJ’s unlimited bond-buy offer is clearly waning,” said Takahide Kiuchi, a former central bank board member who is now an economist at Nomura Research Institute.”Markets may more forcefully test the BOJ’s resolve to defend the 0.25% ceiling, which may prompt the bank to modify its approach and allow the 10-year yield to rise more.”The BOJ’s first offer for unlimited bond buying in the morning failed to prevent the 10-year JGB yield from hitting a six-year high of 0.250% on Monday – the level the bank has set as an implicit cap around its yield target.The central bank made a second offer in the afternoon to buy unlimited amounts of JGBs with maturities of more than five years and up to 10 years.While the first offer drew no bids, the BOJ accepted bids to buy 64.5 billion yen ($524 million) in JGBs in the second offer.The two offers, which were the first since Feb. 10, underscored the BOJ’s resolve to keep rates ultra-low in contrast to the Federal Reserve’s aggressive rate hike plans.The BOJ then announced a plan to buy unlimited amounts of 10-year JGBs at 0.25% for three consecutive days from Tuesday, deploying the most powerful weapon in its armory to defend its yield target.”Markets are putting the BOJ to test, so the central bank has no choice but to keep offering unlimited bond buying,” said Takafumi Yamawaki, head of Japan fixed income research at JPMorgan (NYSE:JPM) Securities.”If yields are allowed to move above 0.25%, investors will think the BOJ has tolerated a rise above that level. That makes it harder for the BOJ to carry on with yield curve control.”Under yield curve control (YCC), the BOJ pledges to guide the 10-year JGB yield around 0% as part of efforts to stimulate the economy by keeping borrowing costs low.The BOJ’s current guidance is that it will allow the 10-year yield to move flexibly around its 0% target as long as it stays below the 0.25% upper limit, though it will take into account not just the level but the speed of any rise in yields.BOJ Governor Haruhiko Kuroda has repeatedly said the central bank would maintain interest rates at the current ultra-low levels, given the fragile economic recovery and as inflation remains well below its 2% target.Growing complaints from politicians over the weak yen, which is inflating Japan’s already rising import costs, may complicate the BOJ’s efforts to keep yields ultra-low, analysts say.The dollar has rallied over 7% against the yen so far in March, its biggest monthly gain in over five years.The BOJ is caught in a dilemma. By capping rates at zero, it is fueling yen declines that may hurt the economy by pushing up the costs for households and companies.”Making offers for unlimited bond buying too frequently may cast doubt over the feasibility of yield curve control,” said Shotaro Kugo, an economist at Daiwa Institute of Research.”It may also draw unwanted public attention over the weak yen, so the BOJ probably wants to avoid stepping in too often.”($1 = 123.1200 yen) More