The push and pull between bond yields and equities continued Monday, with stock gains kept in check by a drop in Treasuries that pushed a swath of rates above three per cent. 

The S&P 500 held onto a gain in a choppy session that saw the index climb as much as 1.5 per cent before paring it back. Blue chips in the Dow Jones Industrial Average were little changed. Amazon.com Inc. rose after implementing a 20-for-one stock split. Twitter Inc. fell after Elon Musk said he believes the company is breaching their merger agreement by not providing information about spam and fake accounts he demanded.

Stocks rallied early in the session after Beijing’s latest move to ease Covid restrictions boosted speculation this would help abate supply-chain pressures. Meanwhile, the selloff in Treasuries sent 10-year yields back above three per cent, a level not seen since mid-May and a potential headwind for risk sentiment. Equities have struggled to mount a sustainable rebound amid fears rising borrowing costs will hurt growth and corporate earnings.

“I am actually surprised the market was up as strongly as it was this morning,” said Joe Gilbert, portfolio manager for Integrity Asset Management. “It will be tough to rally, I believe, with the 10-year yield moving meaningfully above 3.00 per cent.”

Data last week showing stronger-than-forecast US hiring for May suggested the Federal Reserve won’t waver from its tightening path to rein in price pressures. But Goldman Sachs Group Inc. economists said the Fed may be able to pull off its aggressive rate-hike plan without tipping the country into recession. 

Chinese regulators are set to ease curbs on ride-hailing giant Didi Global Inc. and other US-listed tech firms, sending Didi’s shares up more than 20 per cent. Chinese internet stock JD.com Inc. led gains on the Nasdaq 100. Bitcoin rose back above the US$31,000 mark.

Market commentary

• “This year’s decline has not priced-in much of the slowdown in economic growth that we’re going to get this year,” said Matt Maley, chief market strategist at Miller Tabak + Co. “The decline so far has only worked off the overvaluation that existed at the beginning of the year.”
• “Markets are naturally taking it all in and are navigating monetary policy and economic transition,” wrote John Stoltzfus, chief investment strategist at Oppenheimer. “Times like these we have found over the years require patience, prudent diversification and a sense of context. In spite of their troublesome nature in hindsight such downdrafts create opportunity for traders and investors.”
• “A strong consumer that keeps inflation too high for the Fed for too long is a significant risk,” wrote Dennis DeBusschere, the founder of 22V Research. “This week’s CPI report will help determine if price gains are slowing enough to give the Fed comfort or if more aggressive rate hikes/rhetoric will be needed to slow growth. Investors are much more focused on CPI than payroll or other data points.”
• “The upbeat mood was lifted further by signs of Beijing and Shanghai returning to everyday life,” Fiona Cincotta, senior financial markets analyst at City Index, said in a note. “Still, inflation concerns are not going anywhere fast. Rising crude oil prices and a strong labor report have lifted bets that the Fed may need to act aggressively to rein in inflation. US CPI data and consumer confidence data, both due on Friday, will be the key focus of the market this week.”

The US jobs report Friday quelled some concern that the world’s biggest economy is slowing too sharply, but also strengthened the view that the Fed will keep hiking rates to combat inflation. Investors bought equities last week, with US stocks seeing a fourth straight week of inflows as a bear market rally continues, according to Bank of America strategists, citing EPFR Global data.

Crude oil held around US$119 a barrel in New York after Saudi Arabia signaled confidence in demand with a larger-than-expected price increase in Asia. Meanwhile, the US was said to be considering allowing more sanctioned Iranian oil onto global markets to counter the decline in Russian supplies.

Meanwhile, the European Central Bank is set to announce an end to bond purchases this week and formally begin the countdown to an increase in borrowing costs in July, joining global peers tightening monetary policy in the face of hot inflation. The ECB is planniing to strengthen its support of vulnerable euro-area debt markets if they are hit by a selloff, Financial Times reported. 

Key events to watch this week:

• Reserve Bank of Australia policy decision Tuesday
• World Bank’s “Global Economic Prospects” report Tuesday
• Reserve Bank of India rate decision Wednesday
• OECD Economic Outlook, a twice-yearly analysis of major global economic trends and prospects for the next two years. Wednesday
• European Central Bank rate decision, Christine Lagarde briefing, Thursday
• China trade, new yuan loans, money supply, aggregate financing. Thursday
• US CPI, University of Michigan consumer sentiment Friday
• China CPI, PPI Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.3 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.4 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index rose 0.4 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.2 per cent
• The euro fell 0.2 per cent to US$1.0695
• The British pound rose 0.4 per cent to US$1.2536
• The Japanese yen fell 0.8 per cent to 131.87 per dollar

Bonds

• The yield on 10-year Treasuries advanced 10 basis points to 3.04 per cent
• Germany’s 10-year yield advanced five basis points to 1.32 per cent
• Britain’s 10-year yield advanced nine basis points to 2.25 per cent

Commodities

• West Texas Intermediate crude fell 0.5 per cent to US$118.31 a barrel
• Gold futures fell 0.3 per cent to US$1,844.70 an ounce