Treasury Yields Rise; Asia Set For Mixed Start: Markets Wrap

Pedestrians walk under a "trii" gate at the Yasaka shrine in Kyoto, Japan. Photographer: Kosuke Okahara/Bloomberg
Pedestrians walk under a "trii" gate at the Yasaka shrine in Kyoto, Japan. Photographer: Kosuke Okahara/Bloomberg

(Bloomberg) -- Treasury yields climbed and U.S. shares snapped a two-day rally as investors awaited President-elect Joe Biden’s $1.9 trillion Covid-19 relief plan. Asian stocks looked set for a muted start Friday.

Futures were flat in Hong Kong, Japan and Australia. The S&P 500 gave up gains late in the session to end modestly lower. Technology, communication services and consumer discretionary sectors were the biggest losers. After the market closed, the details of Biden’s proposal were released, including a wave of new spending, more direct payments to households, an expansion of jobless benefits and an enlargement of vaccinations and virus-testing programs. Meanwhile, Federal Reserve Chairman Jerome Powell said policy makers won’t raise interest rates unless they see troubling signs of inflation. The dollar weakened.

Elsewhere, oil rose to a new 10-month high in New York on stimulus hopes. Gold was little changed. Bitcoin continued to recover from this week’s rapid plunge.

Investors are debating how high yields can rise before the rally in risk assets falters. Traders betting on an economic recovery this year are tolerating lofty equity valuations, partly because they expect more U.S. fiscal spending and better control of the pandemic with vaccines.

“The new Biden administration coming in understands that this isn’t just a one shot and done recovery and stimulus, we really need to have ongoing support,” Susan Schmidt, fund manager at Aviva Investors, said on Bloomberg TV. “The market is going to look at that and take a lot of comfort in it, and know that there is going to be additional aid coming that can be fine tuned to exactly what is needed.”

Biden’s “American Rescue Plan” comes as deaths from the coronavirus hit record levels and local governments expand lockdowns to stem the pandemic’s spread during the winter months. The proposal also calls for a $15 federal minimum wage and more eviction protections.

Powell said the time to raise rates is “no time soon” and said policy makers would “let the world know” well in advance of any decision to taper bond purchases. His comments further steepened the yield curve, while breakeven rates climbed.

On the virus front, China recorded its first Covid-19 death since April as new clusters continued to expand. France said it will extend tighter curfew measures across the country in a bid to halt the spread of the coronavirus.

Here are some key events coming up:

  • JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. are among firms due to report earnings.
  • U.S. President-elect Joe Biden plans to lay out proposals for fiscal support on Thursday.
  • U.S. retail sales, industrial production, business inventories and consumer sentiment figures are due Friday.

These are some of the main moves in markets:

Stocks

  • The S&P 500 lost 0.4%.
  • Futures on Japan’s Nikkei 225 gained 0.1%.
  • Hang Seng futures were little changed.
  • Futures on Australia’s S&P/ASX 200 Index were flat.

Currencies

  • The Bloomberg Dollar Spot Index fell 0.3%.
  • The yen was at 103.79 per dollar.
  • The offshore yuan held at 6.4674 per dollar.
  • The euro bought $1.2156.

Bonds

  • The yield on 10-year Treasuries rose five basis points to 1.13%.
  • Australia’s 10-year yield gained two basis points to 1.19%.

Commodities

  • West Texas Intermediate crude climbed 1.4% to $53.66 a barrel.
  • Gold was at $1,846.97 an ounce.