Bunds at brink of zero as oil hits high

Marc JonesReuters
The Nikkei was trading 0.63 per cent higher ahead of the Bank of Japan's decision.
Camera IconThe Nikkei was trading 0.63 per cent higher ahead of the Bank of Japan's decision. Credit: AP

A seven-year high for oil prices has pushed benchmark German Bund yields to the brink of positive territory, lifted US Treasuries to pre-COVID levels and left global share markets trudging lower.

A 1.2 per cent early fall for Europe's STOXX 600 and US futures, as well as overnight drops in Asia where China had eased policy, kept MSCI's index of world shares on course for its worst January since 2016.

Tech stocks, which have become highly sensitive to rising borrow costs, were down 1.5 per cent as investors increasingly price in as many as four US Fed hikes this year and even one from the European Central Bank.

Two-year US yields, which track short-term Fed expectations, crossed 1 per cent for the first time since February, 2020. The 10-year was up at 1.84 per cent and Europe's benchmark German Bund was testing zero again at -0.08 per cent.

"With pressure via US Treasuries resuming this morning, the market remains vulnerable, and Bunds look set to test the 0 per cent yield before long," Commerzbank analysts said.

Oil stocks were the only ones in positive territory, jumping 0.4 per cent as Brent crude prices topped $88 a barrel - their highest in more than seven years - after Yemen's Houthi group attacked the United Arab Emirates.

It escalated hostilities between the Iran-aligned group and a Saudi Arabian-led coalition. After launching drone and missile strikes which set off explosions in fuel trucks and killed three people, the Houthi movement warned it could target more facilities, while the UAE said it reserved the right to "respond to these terrorist attacks".

"If current geopolitical tensions continue and OPEC+ members can't deliver on their 400,000 barrel per day increase, macros coupled with the strong technical outlook could see prices push toward the $100 mark," CMC Markets' analyst Ash Glover said.

Overnight, MSCI's broadest index of Asia-Pacific shares outside Japan had edged higher early in the session, before turning and finishing down 0.5 per cent in the afternoon.

China's blue chip CSI300 Index bucked the trend to stand 0.7 per cent higher after difficult days for its troubled property firms.

On Monday, the People's Bank of China unexpectedly cut borrowing costs on its medium-term loans for the first time since April, 2020.

Its vice governor Liu Guoqiang said the central bank will roll out more support.

"We should hurry up, make our operations forward-looking, move ahead of the market curve," he told a news conference on Tuesday.

In currency markets, the dollar index, which tracks the greenback against a basket of currencies of major trading partners, was up at 95.33, while China's yuan hit a 3-1/2 year high.

Japan's yen fell after the Bank of Japan said it would stick to its ultra-loose monetary policy, despite hopes the economy is finally kicking clear of deflation.

Gold was slightly lower at $1,817.1642 per ounce and in emerging markets Russia and Ukraine stabilised after fears of another Russian military foray into Ukraine had sparked a heavy selloff in recent days.

Russia's rouble, highly volatile recently, firmed 0.4 per cent to 76.2 a dollar after reports the West was no longer considering cutting Russian banks off from the Swift global payments system and was instead eyeing sanctions on banks.

Russian bonds, steadied near their March, 2020 lows, while the premium to hold Ukraine bonds over safe-haven US Treasuries also narrowed fractionally having surged past 1,000 basis points, a level generally regarded as distressed, on Monday.

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