By Geoffrey Smith
Investing.com -- U.S. bond yields hit 3%, pushing the dollar to a new 20-year high against the yen. Russia starts its long-awaited offensive against eastern Ukraine as sanctions bite into its oil production. Crude prices still fall due to ongoing concerns about the strength of Chinese demand. Stocks are set to open at new one-month lows, with Netflix earnings and March housing starts and building permits the big events on the calendar. Here's what you need to know in financial markets on Tuesday, 19th April.
1. Yen collapses as Bullard comments drive yields higher
The dollar resumed its upward march after St. Louis Federal Reserve President James Bullard raised the possibility of the central bank raising the Fed funds target rate by 75 basis points at its May meeting.
Bullard is at the hawkish end of the Fed’s spectrum and said that such a move wouldn’t be his “base case,” but in the last six months, he has regularly been ahead of the rest of the Fed’s top policymakers in identifying the need for tighter monetary policy.
His comments sent the 30-year Treasury bond yield up to 3% for the first time in over three years, while the widening yield differential with Japan, whose central bank still refuses to countenance any tightening of monetary policy, led to more carnage in USD/JPY, with the dollar hitting a 20-year high of 128.46 against the yen.
2. Russia starts Donbas campaign
Russia started its long-awaited offensive against the eastern Ukrainian region of Donbas, according to Ukrainian President Volodymyr Zelensky.
Long-range rockets also struck the capital Kyiv and the west Ukrainian city of Lviv over the weekend, as Moscow tried to stop the flow of western arms to government forces. Contrary to Russian claims last week, Ukrainian resistance is continuing in the besieged city of Mariupol, whose defenders have refused successive surrender demands.
Russia’s Foreign Minister Sergey Lavrov, meanwhile, rejected assertions by western intelligence sources that Moscow is considering the use of tactical nuclear weapons to achieve victory, despite the conspicuous failures of its conventional forces in achieving their initial aims.
The war in Ukraine was one of the main factors behind the World Bank’s decision on Monday to slash its world growth forecast for 2022 to 3.2% from a previous estimate of 4.1%
3. Stocks set to open lower; streaming services gloomy ahead of Netflix report
U.S. stock markets are set to test new one-month lows at the open, with the latest rise in U.S. bond yields and the prospect of a world economic slowdown weighing on the outlook. The handover from Asia and Europe hasn’t helped, with Chinese stocks failing to build on Monday’s rally in response to a broad raft of economic support measures.
By 6:15 AM ET (1015 GMT), Dow Jones futures were down 60 points, or 0.2%, while S&P 500 futures were down 0.3% and Nasdaq 100 futures were down 0.4%.
Stocks likely to be in focus later include Netflix (NASDAQ:NFLX), which reports earnings after the bell. Fresh data out of the U.K. earlier suggested that squeezed households are canceling streaming subscriptions at a record rate (although Netflix is the least affected). Also still in focus is Twitter (NYSE:TWTR), amid reports that private equity giants may help Elon Musk break down the company’s poison pill defense against his hostile bid.
Johnson & Johnson (NYSE:JNJ), Lockheed Martin (NYSE:LMT), Travelers (NYSE:TRV), IBM (NYSE:IBM) and Halliburton (NYSE:HAL) are also due to report in the course of the day.
4. Chinese stocks falter as Zero-COVID strategy trumps stimulus measures
Shanghai acknowledged its first deaths from COVID-19 in over two years, as China showed no sign of abandoning its zero-tolerance policy toward the disease. Tangshan, the country’s largest steelmaking town, announced three days of mass-testing that is likely to weigh on factory output.
Chinese stocks faltered after a brief rally on Monday, unconvinced that the 23 measures announced by the government and central bank – including a smaller-than-expected 25 basis point cut in the Reserve Ratio Requirement – will be enough to sustain growth. A regulatory clampdown on live streaming of video games – which hit Bilibili (NASDAQ:BILI) and Kuaishou (HK:1024) stocks – also hurt sentiment.
Bank of America (NYSE:BAC) became the latest major bank to cut its Chinese GDP forecast earlier, now predicting 4.2% growth, down from 4.8% earlier. China’s first quarter GDP report had already showed a sharp slowdown due to COVID-driven lockdowns, while monthly data had shown retail sales falling 3.5% on the year in March.
5. Oil retraces as China fears outweigh Libya, Russia news
Crude oil prices eased after Monday’s surge, as fears over Chinese demand returned to the fore.
Prices had risen on Monday due to a wave of protests at production and transportation facilities in Libya, which took an estimated 500,000 barrels a day offline. Libya is a key source of oil for Europe and an even more important one at a time when many European buyers are choosing not to buy Russian oil.
Reuters reported earlier that Russia’s output fell some 300,000 barrels a day below its OPEC+ quota in March, as the lack of European buyers disrupted the activities producers, pipeline companies, and export terminals which customarily serve the European market.
By 6:25 AM ET, U.S. crude futures were down 1.4% at $106.06 a barrel, while Brent futures were down 1.4% at $111.62.