US equity futures and global stocks recovered some of their Friday losses after hitting a four-week low earlier in Monday’s session, as investors dipped their toe and bought risk after last week’s surprise hawkish shift by the Fed even as the dollar hovered below a 10-week high. S&P 500 futures rebounded after spending most of the Asia session in the red, while Europe’s Stoxx 600 Index also recovered from an earlier loss, with U.K. grocer Wm Morrison Supermarkets surging 32% after rejecting an unsolicited takeover bid, sending shares of peers Tesco Plc and J Sainsbury Plc higher.

“It just looks like a bit of relief rally following last week’s heavy sell-offs,” said MUFG analyst Lee Hardman. “Market participants will be watching closely comments from Fed officials in the week ahead to see if any push back against hawkish market repricing following last week’s FOMC meeting”

Last Friday, St. Louis Fed President James Bullard fueled a sell-off by saying the shift toward faster policy tightening was a “natural” response to economic growth and particularly inflation moving quicker than anticipated as the country reopens from the coronavirus pandemic.

“The Fed’s pivot to begin the tightening discussion caught most by surprise, but markets began discounting this inevitable process months ago in our view,” Morgan Stanley analysts wrote in a report. “It’s exactly what the mid-cycle transition is all about, and fits nicely with our narrative for choppier equity markets and a 10-20% correction for the broader indices this year.”

“We have another possibly two years before the Fed starts to take action,” John Woods, Asia Pacific chief investment officer at Credit Suisse Group AG, said on Bloomberg Television. “So I do anticipate there will be a period of choppy, sideways trading as the volatility associated with this debate in the Fed is reflected in pricing, but absolutely I take the view that yields will tick a little higher.”

Earlier in the session, growing fears that a faster-than-expected policy tightening by the Federal Reserve would sink the reflation trade and send the US economy into recession amid dismal new estimates of r*, spurred caution across markets. The 30-year Treasury yield dropped below 2% for the first time since February as Asian markets plunged, with the Nikkei 225 down 4% at one point, forcing the BOJ to buy ETFs to stabilize risk for the first time since April.

While meme stocks were once again bid, cryptocurrency-exposed stocks tumbled in U.S. premarket after Bitcoin crashed over the weekend and into Monday amid a fresh crackdown by China whose digital yuan is proving to be a total disaster so far, prompting Beijing to take out its anger on cryptocurrencies. Bitcoin dropped 10%, sliding below $33,000 amid weakening appetite for riskier assets and China ordered payment platform Alipay and domestic banks to not provide services linked to trading of virtual currencies. The Chinese city of Ya’an was  said to have started a crackdown on crypto mining firms.

As a result, Cryptocurrency-exposed stocks slumped: Riot Blockchain (RIOT) plunged 6.5% in premarket trading and Marathon Digital (MARA) drops 7%, while Coinbase (COIN) slips 2.3% and Ebang (EBON) declines 4.4%. Here are some other notable pre-movers today:

• Luokung Technology (LKCO) climbs 16% after announcing its eMapgo Technologies unit won a contract to provide a traffic control network in China’s Jiangxi Province.
• Raven Industries surges 48% after the Agnelli family’s CNH Industrial agreed to buy the U.S. precision agriculture-technology company for about $2.1 billion.
• Torchlight Energy Resources (TRCH) jumped as much as 63% after the stock was touted on Reddit as a potential short squeeze. Other meme stocks also climbed: AMC Entertainment (AMC) advances 3.4% and GameStop (GME) gains 1.8%, while Clover Health (CLOV) rises 1%

MSCI’s All Country World Index was down 0.2%, trimming some losses after hitting its lowest since May 24.

Europe’s Stoxx 600 rose 0.3% and was near session highs after dropping as much as -0.6% earlier, with the Stoxx Europe 600 Basic Resources Index falling as much as 2.1%, down for a 6th consecutive day, as iron ore retreated after China’s inbound steel scrap spiked to the highest in more than two years, threatening the role of the ore. Here are some of the biggest European movers today:

• Wm Morrison shares soar as much as 30%, rising above the level of the rejected bid from private equity firm Clayton Dubilier & Rice.
• Peers also gain as analysts see potential for more takeover activity for the sector. J Sainsbury +5.7%, Marks & Spencer +4.1%, Tesco +3.2%
• Ocado rises 5.3%, also boosted by a Morgan Stanley upgrade
• Kerry Group gains as much as 3.2%, best performer in the Stoxx 600 food, beverage and tobacco subgroup, after agreeing to buy preservation tech company Niacet for EU853m. The acquisition is a strong strategic fit, according to Goodbody.
• Ontex gains as much as 7.5% after the Belgian diaper maker predicted stable like-for-like revenue for 2021, with a return to growth from 2Q, and committed to 2023 targets.
• Nordic Semiconductor slides as much as 7.3% to the lowest since May 20 after Pareto Securities double-downgrades the stock to sell from buy, the only sell rating among analysts tracked by Bloomberg.
• European travel stocks drop after the U.K. government signaled it will keep restrictions on overseas travel in place for the time being due to a surge in Covid-19 infections and the risk of new variants taking hold.

Earlier in the session, stocks in Asia took their cue from Wall Street’s falls on Friday but European shares bucked the trend, with the pan-European STOXX 600 index up 0.3% by mid-morning trade in London.  Japan’s Nikkei led declines with a 3.6% drop and dipped below 28,000 for the first time in a month, while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.4%. Chinese blue chips lost 0.7%.

“The interesting part about this correction is that it was lagged, so it took a while for the market to sort through the news,” said Sebastien Galy, senior macro strategist at Nordea Asset Management. “The situation in reality is actually pretty good – the Fed is stabilizing inflation…Cyclical sectors may have overshot the market in the short term and so you may have a bit of pressure on the sector.”

In rates, the 10-year U.S. Treasury yields recovered to 1.4313% after falling to their lowest since Feb. 24 at 1.3540%. The yield curve – measured by the spread between two- and 30-year yields – earlier hit its flattest since late January, and as investors brought forward rate hike expectations while lowering the longer-term outlook for growth and inflation.

In FX, the U.S. dollar hovered just below the 10-week high touched on Friday versus major peers, following its biggest weekly advance in more than a year. The euro traded above its lowest against the dollar since April 6 at $1.1895 on Monday, dropping from as high as $1.21457 last Tuesday. Sterling recovered some ground, to trade 0.6% higher at $1.3868 after sliding to its lowest since April 16 on Friday.

Commodity-linked currencies have also suffered, with the Australian dollar hovering above a six-month low at $0.7495. The trade-sensitive New Zealand and Australian dollars led G-10 gains and the dollar slipped against peers on a pick-up in global risk appetite. The kiwi rose as much as 0.5% to 0.6973, and the Aussie gained as much as 0.6% to 0.7522 in its biggest move since June 4. The haven Swiss franc traded close to the bottom of the leader board; moves came as U.S. equity futures rose and European stocks pared losses.

“Last week’s dollar rally is a combination of expectations and positioning (sold dollars), a concern that the Fed is ‘behind the curve’ (and therefore must do more and earlier than expected), and that stock markets have started to lose ground which makes the dollar strengthen as the most defensive currency,” Filip Carlsson, junior quantitative strategist at SEB, said in a morning note. “We still see this as a correction and not the beginning of a new trend.”

In commodities, gold rebounded 1.2% to $1,784 an ounce on Monday, looking to snap a six-day losing streak, but remained near the lowest since early May. Three-month copper on the London Metal Exchange fell to its lowest since April 15, following an 8.6% drop last week, the biggest weekly fall since March 2020.

Crude oil rose for a second day, underpinned by strong demand during the summer driving season and a pause in talks to revive the Iran nuclear deal that could indicate a delay in resumption of supplies from the OPEC producer. Brent crude futures rose 0.2% to $73.64 a barrel, while WTI crude rose 0.3% to $71.83 a barrel.

As noted above, cryptocurrencies fell back, hurt by a general worsening of investor sentiment as well as China’s ongoing crackdown on Bitcoin mining and the prospect of tighter regulations elsewhere.

Traders will be paying close attention to this week’s appearances by Fed policy makers, including Chair Jerome Powell, for more guidance on a possible timeline for tapering asset purchases. Last week, markets were shocked when the Fed sped up its expected pace of policy tightening amid optimism about the labor market and heightened concerns over price pressures in the recovery from the pandemic. And after last week’s FOMC shock which was compounded by Bullard even more hawkish comments on Friday morning, we will get even more Fed speakers today including a repeat appearance by James Bullard and Robert Kaplan both of whom are scheduled to speak later on Monday, while John Williams and Jerome Powell will speak later this week. Bullard said on Friday that inflation risks may warrant the Fed to begin raising interest rates next year. ECB President Christine Lagarde also speaks before the European Parliament on Monday.

Market Snapshot

• S&P 500 futures up 0.3% to 4,165.50
• STOXX Europe 600 up 0.3% to 453.50
• MXAP down 1.5% to 204.41
• MXAPJ down 1.1% to 687.86
• Nikkei down 3.3% to 28,010.93
• Topix down 2.4% to 1,899.45
• Hang Seng Index down 1.1% to 28,489.00
• Shanghai Composite up 0.1% to 3,529.18
• Sensex little changed at 52,371.90
• Australia S&P/ASX 200 down 1.8% to 7,235.31
• Kospi down 0.8% to 3,240.79
• German 10Y yield rose 0.3 bps to -0.197%
• Euro up 0.2% to $1.1891
• Brent Futures up 0.3% to $73.71/bbl
• Gold spot up 1.1% to $1,783.66
• U.S. Dollar Index down 0.11% to 92.12

Top Overnight News from Bloomberg

• Bitcoin slid Monday amid fraying appetite for riskier investments and an intensifying cryptocurrency crackdown in China
• President Emmanuel Macron and far-right leader Marine Le Pen both fared worse than expected in the first round of France’s regional election, in a disappointing twist for the two main contenders in the 2022 presidential race. The main winners were the traditional right, the Republicans, who averaged 28% across the country, according to an Ifop poll
• The U.S. is preparing additional sanctions against Russia for the poisoning of opposition leader Alexey Navalny, National Security Adviser Jake Sullivan said
• The U.K. government signaled it will keep restrictions on overseas travel in place for now to control a surge in coronavirus infections and the risk of new variants of the virus taking hold
• The currencies of Brazil, Russia, the Czech Republic, South Africa and Hungary– countries that delivered multiple rate hikes or are expected to do so soon — are retaining quarterly gains and outperforming peers. More may join their ranks, with tightening expectations growing for countries including Chile and South Africa as economic activity and inflation roar back from a pandemic-driven slump
• Chinese officials will spend the next month or so fanning out across the country to check on capacity curbs in the steel industry. The program to rein in emissions from the highly pollutive sector has foundered after a spike in prices encouraged mills to churn out record quantities of the alloy

Quick look at global markets courtey of Newsquawk

APAC equities were mostly negative as the downbeat mood from Wall Street reverberated into the region following the hawkish Friday remarks from the Fed’s 2022-voter Bullard, with both the Dow and S&P 500 hitting session lows in the final minutes of trading and the former posting its worst weekly loss since October. US equity futures extended on Friday’s losses ahead of a week teeming with Fed speakers – including Fed Chair Powell’s testimony to Congress tomorrow; however, as the European morning progresses US equity futures pared back this underperformance and are now firmer on the session, ES +0.5%. Back to APAC, the ASX 200 (-1.8%) was under pressure from its heavyweight mining and financials sectors, whilst the Nikkei 225 (-3.3%) plumbed the depths in early trade before dipping below the 28k mark – with underperformance seen across its industrial and auto sectors. Losses in South Korea’s KOSPI (-0.8%) were somewhat cushioned in early trade as the country is poised to relax its social-distancing rules starting next month amid slowing COVID cases, whilst prelim trade figures were also constructive. Hang Seng (-1.0%) and Shanghai Comp (+0.1%) were mixed after both initially conformed to the soured risk tone with the latter more composed after finding buyers at around the 3,500 level and amid reports on Friday that Chinese officials are reportedly drafting plans to further loosen birth restrictions by 2025. Finally, 10yr JGB futures tracked gains across US and German counterparts as the fixed-income complex remains underpinned by the soured risk tone.

Top Asian News

• Hong Kong to Cut Quarantine Time for Vaccinated Travelers
• Evergrande Takes On Short Sellers With $400 Million Asset Sale
• Apple Daily to Suspend Paper If Hong Kong Accounts Stay Frozen
• China Risks Isolation in Quest for Virus Origin, Biden Aide Says

European equities kicked the session off on the backfoot, in-fitting with losses seen on Wall Street on Friday and overnight during the APAC session. The moves in equity markets took place in the wake of hawkish remarks from 2022 voter Bullard last Friday who cautioned that a quicker pace of tightening policy would be a natural response to economic growth and inflation. Note, developments in the rates market ahead of the European entrance hinted more of a potential policy mistake/ focus on the growth implications for the economy from a faster pace of Fed tightening as the US 10yr and 30yr cash yields dipped below 1.40% and 2.00% respectively. This prompted more of a preference towards safe-haven assets and helped explain the combination of softer equities/lower yields. That said, as the European session progressed price action reversed and indices are now firmer on the session (Euro Stoxx 50 +0.6%) – seemingly taking the lead from a resurgence in US futures, ES +0.5%. From a sector standpoint, the bias is towards a more anti-cyclical stance as Travel & Leisure, Basic Resources, Banks and Oil & Gas lag peers and indeed remain in the red in-spite of the general pick up in performance. As the reflation trade pauses for breath, direction for the market this week will likely be determined by the tone of Fed rhetoric amid a busy speaker slate. In terms of stock specifics, Morrisons (+32%) is the notable outperformer in Europe after receiving a GBP 2.30/shr (vs. Friday close of GBP 1.78/shr) takeover offer from CD&R. Morrisons rejected the bid, however, speculation remains that a higher offer will be presented at some stage with some reports touting potential interest from rival bidders such as Lone Star and Amazon. The prospect of sector consolidation has also provided support to the likes of Ocado (+3.8%), Sainsbury’s (+3.9%) and Marks & Spencer (+2.7%). Other deals to be aware of in the region include Vivendi (+0.3%) selling a 10% stake in Universal Music Group to Pershing Square, CNH Industrial (+1.8%) acquiring Rave Industries for USD 2.1bln and Generali (+1.3%) filing an offer document with CONSOB for a takeover bid for Cattolica.

Top European News

• Agnellis’ CNH Industrial Acquires Raven for $2.1 Billion
• Porsche to Make High-Performance Battery Cells in Germany
• U.K. Housing Market Growth Slows as Record Prices Deter Buyers
• Half of London Firms Plan for Home Working Five Days a Week

In FX, an unusually volatile start to the week following heavy declines in APAC equities, base metals and crypto currencies overnight that prompted a pronounced rally in US Treasuries and other safe haven assets like the Greenback and Yen to varying degrees. However, the Buck lost momentum as yields descended through key or psychological levels, like 1.40% in the 10 year benchmark and 2% in long bonds. Moreover, the DXY may have faded on technical grounds after reaching 92.375 and falling short of last Friday’s 92.408 peak, but retains an underlying bid just ahead of 92.000 as USTs drift down from best levels and rates tick up. Looking ahead, only May’s national activity index is scheduled on the data front, but Fed’s Bullard, Harker, Kaplan and Williams are all slated to speak and the former certainly gave the Dollar a boost last time out with some particularly hawkish comments.

• NZD/GBP/AUD/EUR/JPY – All things considered, the Kiwi is holding up quite well around 0.6950 against its US counterpart and has clawed back losses vs its Antipodean peer after defending 1.0800 on the cross in the run up to Westpac’s Q2 NZ consumer survey tonight, while the Aussie is straddling 0.7500 against its US rival in wake of weaker than forecast prelim retail sales and against the backdrop of the aforementioned slide in copper, iron ore etc. Elsewhere, Sterling has reclaimed 1.3800+ status and is still trading mostly above 0.8600 vs the Euro even though the latter has rebounded from just under 1.1850 against the US Dollar again and is now eyeing offers/resistance into 1.1900 on the back of a firmer rebound in EGB yields. Meanwhile, the Yen is pivoting 110.00 where decent option expiry interest sits (1.2 bn) having contained losses to circa 110.26 before testing an upside chart level at 109.70.
• CHF/CAD – The Franc has recovered some post-dovish SNB losses between 0.9237-07 parameters, but with little reaction to the Bank expanding the range of mortgage market indicators and providing a selection to the public as the number of housing loans offered by banks rises, or to latest weekly sight deposits showing a small rise in domestic balances. Similarly, the Loonie is off worst levels within a 1.2487-36 range, though still not getting a lot in the way of impetus from oil in advance of Canadian retail sales data on Wednesday.
• SCANDI/EM – The Nok continues to underperform following only a fleeting or knee-jerk rise when the Norges Bank tightened rate hike guidance and raised its depo path profile last Thursday, but the Sek is displaying some resilience and patience given the latest vote of no confidence in Swedish PM Lofven who will provide an update within one-week on whether he will resign or call for snap elections. Elsewhere, the Zar and Mxn are bucking a broadly weaker trend vs the Usd on relative strength in Gold and WTI respectively, but the Cnh/Cny are softer after a lower PBoC midpoint fix and unchanged LPRs, the Try is back down near record lows and Rub off recent recovery highs amidst more Russian-US strains on potential further sanctions.

In commodities, WTI and Brent have commenced the European session with modest gains after somewhat choppy performance overnight throughout which newsflow has been quite light aside from geopolitical updates. Currently, the benchmarks post gains of USD 0.30/bbl each with this marginal upside following similar performance in US futures which, as mentioned, recuperated from overnight losses. On the geopolitical front Raisi secured victory in the Iranian Presidential elections as expected though this appointment should not have much, if any, impact on nuclear negotiations due to the Supreme Leader having the final say. In terms of the latest tone of discussions the US National Security Advisor Sullivan said talks are going in the right direction and EU representatives believe an agreement is very close. However, bear in mind an Iranian spokesperson has stated that a new JCPOA can never be negotiated placing the impetus very firmly on ongoing talks. Returning to crude itself and following similar bullish commentary from other desks BofA says that oil could briefly hit USD 100/bbl in 2022 and looks for Brent to average USD 75/bbl throughout that year, given tighter balances between supply and demand. Moving to metals, spot gold and silver are firmer benefitting from an initially choppy but now notably subdued USD alongside a very modest pullback in yields; posting gains of circa 1.0% but off respective highs of USD 1785/oz and USD 26.13/oz. Elsewhere, base metals are pressured but stable when compared to recent price action particularly for the likes of LME copper given last week’s losses.

US Event Calendar

• 8:30am: May Chicago Fed Nat Activity Index, est. 0.70, prior 0.24

DB’s Jim Reid concludes the overnight wrap

The tumultuous couple of days or so in bond markets following the FOMC has carried on overnight with another big rally. Given these extreme moves one of the most important things this week will likely be Fed speakers responding to the meeting and subsequent market reaction. Make no mistake the market reaction was fairly extreme to what at the end of the day is a Fed that themselves suggest they are still around 2 and a quarter years away from raising rates. Although the US 10yr yield move wasn’t that dramatic over the full week (-1.4bps), the curve move was extreme as 5yr yields rose +13.6bps but 30yr yields rallied -12.5bps. The 5yr-30yr yield curve saw the largest one week flattening (-26.1bps) in nearly ten years. Overnight 5 year US yields have rallied -2bps but 30 years have rallied another -6.6bps, so the aggressive flattening continues. I can’t say the move makes much sense but one has to respect the signals for now. Some say it proves the Fed won’t ever be reckless in their pursuit of FAIT and inflation will be contained. Some say it’s showing the start of a policy error. For me, with the upside risks to inflation, the Fed simply got a bit closer to a realistic assessment of the balance of risks. We will see what the follow through is this week.

As for those Fed speakers, the highlight on paper will be Fed chair Powell’s testimony tomorrow before the House select subcommittee on the Covid-19 crisis. However, Powell’s discussion is expected to center on the Fed’s policy response and we may not get too much FOMC insight.

Before that Bullard (non-voter, dove) and Kaplan (non-voter, hawk) discuss the economic outlook today. They both have expressed a preference for liftoff in 2022, though for somewhat different reasons. Bullard rocked markets on Friday by suggesting his 2022 core PCE inflation forecast of 2.5% as justifying a hike in late 2022, whereas Kaplan has recently focused on financial stability concerns. So there might not be much more for these guys to say today but New York President Williams (voter, dove) later this afternoon might have fresh views especially on the taper given the responsibility for the Fed’s balance sheet that his region has.

Before Powell tomorrow, San Francisco’s Daly (voter, dove) and Cleveland’s Mester (non-voter, hawk) will be speaking at separate events while on Wednesday, we will hear from Fed Governor Bowman (neutral), Atlanta President Bostic (voter, neutral) and Boston’s Rosengren (non-voter, hawk). Bostic will appear again on Thursday alongside Philadelphia’s Harker (non-voter, hawk), the latter of which has also been a proponent of tapering asset purchases sooner rather than later. We’ll also have repeat performances from Williams, Bullard, Kaplan and Mester over the week. So plenty of potential market moving jawboning. The Fed were very coordinated in playing down inflation risks after the first mega CPI print six weeks ago so it’ll be interesting if they all sing from the same song sheet this week. I can’t help thinking that the debate is starting to liven up at the Fed now but will the last few days of market moves scare them?

Moving onto the data the biggest highlight will be the release of the June flash PMIs on Wednesday from around the world, which will give us an initial indication of how the global economy has performed into the end of Q2. The final May PMIs showed that growth was still maintaining decent momentum, with the Euro Area composite PMI coming in at 57.1, the strongest in over 3 years, while the US composite PMI was at 68.7, which is the strongest since the data goes back to in October 2009. Another release of note will be the German Ifo’s business climate indicator for June (Thursday), which rose to a 2-year high last month of 99.2.

Friday will be a key day with inflation being dissected within the US personal income and University of Michigan releases. Clues to Core PCE will be the key in the former with the 5-10 year inflation expectations important on the latter. On this, May’s number dipped 0.2% from April’s 3%. So all eyes on this.

The main monetary policy decision this week comes from the Bank of England on Thursday, where our economists write in their preview (link here) that they expect the MPC to remain cautiously optimistic around the recovery, keeping the policy rate on hold at 0.1% and maintaining the target stock of QE at £895bn. They think that stronger growth, labour market and inflation data thus far should tilt the policy statement in a slightly more hawkish direction than in May. Nevertheless, something else to watch out for in the UK will be the latest data on Covid-19, as the spread of the delta variant has led to a noticeable rise in cases and hospitalisations over recent weeks, albeit still at relatively low levels compared to earlier in the year. Russia, Germany and Portugal have now also reported an increasing spread of Delta with a big story in the FT today about the variants small but growing footholds across Europe. This will capture some attention. The rest of the week’s main events will be in the day by day list at the end.

As discussed at the top, we are continuing to see a big flattening of the US treasury curve overnight with yields on 30y USTs down by -6.6bps to 1.949%, 10y USTs down -5.9bps to 1.38%, but those on 2y are up by +1bps. In a bad session for equities, the Nikkei (-3.37%), Hang Seng (-1.35%), Shanghai Comp (-0.22%) and Kospi (-1.04%) are all down. Meanwhile, futures on the S&P 500 are -0.56% and those on the Stoxx 50 are -0.92%. In commodities, DCE iron ore futures are down -4.96% while SHF steel rebar futures are down -2.06%.

Turning to politics, French President Macron and far-right leader Marine Le Pen both are likely to have fared poorly in a regional election in France where the turnout was at an all-time low of c. 33% (vs. c. 50% in last election). According to an Ifop poll, Le Pen’s National Rally got 19%, c. 10 points behind her performance in the last election while, Macron’s party took only 11% and is not expected to win any regions. Better performances came from the Conservative party that likely received 27% of votes while the Greens are likely to be at 12%. To know more on how the outcome of regional elections can have an impact on the French Presidential election in 2022 read this note from our European economists (link here).

Now back to last week, the key event was clearly the FOMC. The hawkish pivot from the Fed was highlighted by the dot plot now showing the 2023 median dot pricing in 2 rate hikes (25bps), compared to 0 hikes in March. Bond prices reacted strongly to the Fed announcement, with 10yr yields initially increasing over 8bps on Wednesday. However by the end of the week the yield curve flattened significantly, with longer terms yields falling sharply as investors grew in confidence that the Fed would rein in inflation or conversely that there may be a policy error in the offing. The hawkish pivot caused the US dollar index to increase +1.84% on the week – the largest one week rise in the greenback since September.

As we discussed at the top, over the course of the week the US 10yr yield move wasn’t that dramatic as they fell -1.4bps (-6.6bps Friday) to 1.438%, driven by a -10.1bp decline in inflation expectations, while real yields rose +9.0bps. 30yr US bond yields fell a more significant -12.5bps to 2.01% – their lowest close since mid-February. On the other hand 5yr yields finished the week +13.6bps higher to 0.87%. Overall that left the 5yr-30yr yield curve at late-September levels, after the largest one week flattening (-26.1bps) in nearly ten years. Other Sovereign bonds sold off as well with 10yr bund yields increasing +7.4bps, UK gilt yields up +4.5bps and French OAT yields up +6.4bps.

The rate volatility caused moves across asset classes, with equities seeing a twist of their own. The S&P 500 was down -1.91% (-1.31% Friday) as cyclicals such as banks (-8.10% on week) and energy (-5.40% on week) companies declined significantly on the lower rate and commodity price outcomes. On the other hand, high-growth stocks which do better in a low rate environment strongly outperformed with the NASDAQ “only” down -0.28% on the week, while the megacap tech NYFANG index rose +1.58% in its fifth straight weekly gain. Small caps stocks struggled in particular, declining -4.20%, but remain the outperformer on a YTD basis – up 13.3%, compared to the S&P 500’s +10.9% gain. In Europe there was a similar growth over cyclical rotation, and the STOXX 600 fell -1.19%, with the majority of losses (-1.58%) coming on Friday.