U.S. stocks edged higher in early trading and Treasuries slid as investors weighed the prospect of aggressive policy action to curb inflation.

The S&P 500 swung to a 0.2 per cent gain, while the tech-heavy Nasdaq 100 fell. The 10-year Treasury yield hit a fresh three-year peak, while German and U.K. 10-year yields climbed to the highest since 2015 as bonds across Europe plunged. The dollar strengthened.

Investors -- already betting on an almost half-point Federal Reserve rate increase next month -- are reassessing tightening expectations after St. Louis Fed President James Bullard said that hikes of as much as 75 basis points shouldn’t be ruled out. The last increase of such magnitude was in 1994. 

Disruptions to supply chains from China’s lockdowns and to commodity flows from the war are keeping pressure on central banks to rein in runaway prices at a time when global growth is tipped to slow. The World Bank cut its forecast for global economic expansion this year on Russia’s invasion.

“The Bullard comments really encapsulate the quandary that many of the world’s central banks have found themselves in,” said Jeffrey Halley, a senior markets analyst at Oanda. “Luckily, they have plenty of excuses in the shape of the pandemic and the Ukraine war. Central banks can now play catchup, hike aggressively and run the risk of recessions. Getting the pain over and done may be the least worst option.”

Oil retreated, snapping a four-day rally, as traders weighed the precarious demand outlook. Copper rose with other base metals as disruptions at mines in Peru added to worries about tight supplies at a time when inventories are at alarmingly low levels. Gold held near a five-week high.

The Stoxx Europe 600 index fell more than 1 per cent. Equities gained in Japan as the yen extended its longest losing streak in at least half a century. Hong Kong technology names declined on ongoing concerns over regulation. China dropped as investors assessed measures to tackle economic headwinds from COVID-led lockdowns.

In China, markets are also awaiting the release of banks’ benchmark lending rates on Wednesday after the People’s Bank of China reduced the reserve requirement ratio for most banks Friday but refrained from cutting interest rates.

The latest policy measures “have really highlighted easing is required,” Gareth Nicholson, Nomura chief investment officer and head of discretionary portfolio management, said on Bloomberg Television. “The markets don’t believe enough has been done and they’re going to have to step it up.”

Russia’s military pressed on with its offensive in southern and eastern Ukraine, with President Volodymyr Zelenskiy saying Moscow had launched a new campaign focused on conquering the Donbas region.

What to watch this week:

• Earnings include American Express, China Telecom, IBM, Netflix, Tesla
• Chicago Fed President Charles Evans to speak, Tuesday
• EIA crude oil inventory report, Wednesday
• China loan prime rates, Wednesday
• Federal Reserve Beige Book, Wednesday
• French presidential election debate, Wednesday
• San Francisco Fed President Mary Daly, Chicago Fed President Charles Evans, due to speak, Wednesday
• Euro zone CPI, U.S. initial jobless claims, Thursday
• Fed Chair Jerome Powell, ECB President Christine Lagarde discuss global economy at IMF event, Thursday
• Manufacturing PMIs: Euro zone, France, Germany, U.K, Friday
• Bank of England’s Andrew Bailey to speak, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.2 per cent as of 9:36 a.m. New York time
• The Nasdaq 100 fell 0.1 per cent
• The Dow Jones Industrial Average rose 0.4 per cent
• The Stoxx Europe 600 fell 1.2 per cent
• The MSCI World index fell 0.2 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.3 per cent
• The euro rose 0.1 per cent to US$1.0795
• The British pound fell 0.2 per cent to US$1.2991
• The Japanese yen fell 1.3 per cent to 128.67 per dollar

Bonds

• The yield on 10-year Treasuries advanced six basis points to 2.91 per cent
• Germany’s 10-year yield advanced 10 basis points to 0.94 per cent
• Britain’s 10-year yield advanced 10 basis points to 1.99 per cent

Commodities

• West Texas Intermediate crude fell 3.5 per cent to US$104.43 a barrel
• Gold futures fell 1 per cent to US$1,965.60 an ounce