On Monday, Asian stock markets remained cautious following a mixed US jobs report prompted a recovery in the beaten-down bonds, yet further hurdles awaited in the form of inflation data from the US and China due later this week.
After dropping 2.3% the previous week, MSCI's broadest index for Asia-Pacific equities outside Japan was a bit firmer in weak trade.
The Nikkei in Japan fell 0.2% but identified support at its July low. According to a summary of the most recent Bank of Japan conference, participants believed that making yield policy more adaptable would assist in extending life of the bank's ultra-easy stimulus.
Chinese blue chips fell 0.7% as investors remained dissatisfied with Beijing's failure to implement major and meaningful stimulus measures.
Euro Stoxx 50 futures fell 0.3%, while FTSE futures fell 0.5%. On the other hand, S&P 500 futures rose 0.4%, and Nasdaq futures rose 0.5%.
With almost 90% of S&P 500 earnings announced, results are 4% higher than consensus projections, with over 79% of businesses outperforming the market. Walt Disney and News Corp are expecting results due this week.
Consumer prices in the United States are expected to rise slightly to 3.3% on an annual basis, but the more crucial core rate is seen falling to 4.7%.
Goldman Sachs analysts foresee a downside risk regarding the numbers, owing in part to falling auto prices, which might help maintain the bond rally.
In China, the stock market is expecting further signals of deflation, with annual consumer prices decreasing by 0.5% and producer prices falling by 4%.
Any positive surprises could be a test for Treasuries, which increased sharply early last week before a rush of fresh borrowing. In the end, a mixed payroll report aided in reversing much of those losses, especially in the short term.
Futures indicate only a 12% possibility of a Federal Reserve hike in rates in September and a 24% chance of a hike by the end of the year.
Given the recent run of strong economic indicators, Michael Gapen, an economist at BofA, cautioned that the market kept expecting a lot of policy easing in the coming year.
Gapen wrote that now they anticipate a smooth recovery for the US economy, rather than the moderate recession they previously predicted.
While the market expects the Fed to decrease rates by 120-160 basis points in 2024, they estimate only 75 basis points. When economic growth is getting better and the unemployment rate is low, there is just less need for the Fed to immediately flip to rate decreases in 2024.
As a consequence, the bank lifted its two-year and ten-year yield forecasts for the end of the year by fifty basis points, to 4.75% and 4%, respectively.
Two-year yields rose to 4.82% on Monday, with the ten-year yield rising to 4.06%.
The drop in yields weakened the US dollar, which was trading at 141.90 yen, much below last week's high of 143.89.
The euro remained at $1.0988, having recovered from a low of $1.0913 the previous week.
Following Friday's gain from $1,928.90, the dollar's decline helped gold hold around $1,941 per ounce.
Oil prices have stalled after a six-week rally due to tightening supply. The 17% rise in Brent, along with rising food prices due to the Ukraine crisis and global warming, poses a danger to hopes for ongoing disinflation in developed countries.
Brent crude was up one cent to $86.25 per barrel, while US crude was up one cent to $82.83.