German Bonds Rise on Deposit Cap; Stocks Fluctuate: Markets Wrap

(Bloomberg) — Short-term German bonds rose as the central bank said it would stop paying interest on domestic government deposits, spurring a dash for higher-yielding bills.

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Global stock trading was mixed, with US futures ticking higher and Europe trading little changed. Wheat prices rose after a drone attack on a Russian oil tanker prompted a fresh wave of missile strikes by Moscow over the weekend.

The yield on Germany’s two-year notes fell as much as six basis points to 2.95% after the Bundesbank said late Friday it will remunerate domestic government deposits at 0% from October 1.

Treasury yields advanced, reversing some of Friday’s declines when the interest-rate sensitive two-year yields and 10 year yields fell more than 10 basis points after US payrolls came in below estimates.

A closely watched measure of US inflation will be in focus this week with the print due Thursday expected to show more of the moderate price growth that the Federal Reserve wants to see sustained.

“Our view is that the Fed is done,” Eric Robertsen, the global head of research and chief strategist for Standard Chartered Plc, said on Bloomberg Television. “The real question will be once the inflation data gets down toward this 3% level, is the Fed willing or does it feel a need to keep tightening policy to get back toward 2%?”

Swap traders projected about a 40% chance of another quarter-point rate increase by the Fed by the end of this year. By the end of 2024, they projected rate cuts totaling more than 125 basis points.

Fed officials Raphael Bostic and Austan Goolsbee suggested that slower US employment gains mean the central bank may soon need to pivot to thinking about how long to hold rates at elevated levels. Their colleague Michelle Bowman said the Fed may need to raise rates further in order to fully restore price stability.

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In Asia, Chinese pharmaceutical stocks were among the worst performers in the nation on reports of a widening anti-bribery campaign in the health sector. Japanese shares advanced as upbeat earnings and stabling domestic bond yields offset headwinds from a fall in Wall Street shares.

The yen fell and was set to end a three-day winning streak. A summary of opinions from the Bank of Japan’s July meeting showed that one member said the central bank should allow greater flexibility in yield curve control.

Key events this week:

Atlanta Fed President Raphael Bostic and Fed Governor Michelle Bowman at Fed Listens event, Monday

Japan household spending, Tuesday

US wholesale inventories, trade, Tuesday

Philadelphia Fed President Patrick Harker speaks, Tuesday

China CPI, PPI, Wednesday

India rate decision, Thursday

US initial jobless claims, CPI, Thursday

Atlanta Fed President Raphael Bostic pre-recorded remarks for employment webinar, Thursday

UK industrial production, GDP, Friday

US University of Michigan consumer sentiment, PPI, Friday

Some of the main moves in markets:

Stocks

The Stoxx Europe 600 was little changed as of 8:34 a.m. London time

S&P 500 futures rose 0.5%

Nasdaq 100 futures rose 0.6%

Futures on the Dow Jones Industrial Average rose 0.4%

The MSCI Asia Pacific Index was little changed

The MSCI Emerging Markets Index was little changed

Currencies

The Bloomberg Dollar Spot Index was little changed

The euro fell 0.2% to $1.0988

The Japanese yen fell 0.3% to 142.14 per dollar

The offshore yuan fell 0.2% to 7.2023 per dollar

The British pound fell 0.1% to $1.2734

Cryptocurrencies

Bitcoin fell 0.2% to $29,037.34

Ether rose 0.1% to $1,832.01

Bonds

The yield on 10-year Treasuries advanced five basis points to 4.09%

Germany’s 10-year yield advanced one basis point to 2.57%

Britain’s 10-year yield advanced four basis points to 4.42%

Commodities

Brent crude rose 0.1% to $86.25 a barrel

Spot gold fell 0.3% to $1,936.41 an ounce

This story was produced with the assistance of Bloomberg Automation.

—With assistance from Brett Miller and Ishika Mookerjee.

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