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U.S. Futures Gain as Treasuries Extend Declines: Markets Wrap

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U.S. equity futures climbed on Monday along with stocks in Europe as negotiators from Russia and Ukraine prepare for a new round of talks. A global bond rout deepened as traders anticipated Federal Reserve policy tightening to curb inflation.

Contracts on both the S&P 500 and Nasdaq 100 signaled that a measure of calm may return to U.S. markets after last week’s volatile trading. The 10-year Treasury yield climbed to its highest level since July 2019, while the five-year measure crested 2% for the first time in three years. The Fed on Wednesday is expected to begin a cycle of rate increases, starting with a 25 basis-points move. Price pressures were already high before the Ukraine war and the isolation of resource-rich Russia upended commodity flows.

The Stoxx Europe 600 index jumped more than 1%, with carmakers leading the advance following a “confident” outlook from Volkswagen AG. Basic-resources and energy stocks fell as crude oil declined along with natural gas. Tech investor Prosus NV slumped more than 10% after a continued selloff in Chinese technology shares amid regulatory headwinds and concerns about Beijing’s relationship with Russia.

Investors are parsing efforts at diplomacy as Russia continues its war in Ukraine, as well as comments from a U.S. official that Moscow asked China for military assistance. Rising Treasury yields and a 12% drop in global stocks this year signal worries that receding stimulus and higher costs for energy, grains and metals may throttle the world economic recovery.

“We are experiencing extraordinary volatility in global equities compounded by wavering market sentiment, and the risk of recession intensifies on spiraling commodity prices,” Louise Dudley, portfolio manager for global equities at Federated Hermes, wrote in a note. “We expect ongoing swings in the short term as geopolitical uncertainty over Russian crude persists.”

Elsewhere, a 9% plunge in a gauge of Chinese tech firms reverberated around the region, leaving an Asia-Pacific equity index in the red for a second session. A Covid lockdown in Shenzhen, a tech hub, added to the geopolitical and regulatory risks facing the sector.

WTI crude dropped below $105 a barrel. The dollar edged lower and gold retreated. The ruble was steady versus the greenback in Moscow trading, with Russia’s stock market still closed. Investors are waiting to see if Russia defaults on its international debt after losing access to almost half of its foreign-exchange reserves

The Fed is the drawcard among eight Group-of-20 members whose monetary officials are due this week to assess economic prospects.

The Fed is “really stuck between the real economy and the financial economy,” Karen Harris, Bain & Co. global head of macro research, said on Bloomberg Television. “You have mainstream struggling with inflation — that’s why we are set to see these rises coming in March. On the other side we are trying not to prick the financial economy. Either path is deflationary, recessionary.”

While the U.S. and some other nations are tightening monetary settings, speculation is growing that China will introduce more easing to alleviate a slowdown. The yuan and China’s 10-year government bond yield retreated.

Meanwhile, senior U.S. and China officials are set to meet Monday to discuss Ukraine. Russian missiles hit a military training facility in western Ukraine close to Poland, raising new concerns about the conflict potentially spilling over Ukraine’s borders.