Risk leans towards being more defensive in European morning trade

Author: Justin Low | Category: News

European stocks off to a poor start while US futures slump

The surge higher in yields today is starting to leave some ill effects on equities as we see equities sentiment tilt more defensively on the session.

E-minis 22-02
Nasdaq
S&P 500 futures are down 0.7% while Nasdaq futures are down 1.0%, with European indices also keeping in the red as we see a bit of a pullback to start the week.

The thing to note about the surge in yields today is that it comes as breakevens i.e. inflation expectations are leveling off. 10-year breakevens have eased to 2.15% from the highs of 2.24% last week, but 10-year Treasury yields are near 1.40% today:

USGG10YR
The other thing to take note of is that real yields are also creeping higher. On 12 February, it was -1.02% but today we are seeing it high -0.78%. That's a striking 24 bps jump.

It sure looks like things are shaping up towards a clash between central banksters and market participants, with policymakers surely going to feel the need to clarify their dovishness and to keep recent developments in check sooner or later.

Fed chair Powell will be speaking this week, though he will be making comments in Congress so there might not be much on inflation. However, keep an eye on other Fed and ECB speakers as they may see the need to chime in as things continue down this path.
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