Latest market overview: Treasury bond yields up, inflation forecasts and dollar-yen dominance

Rising shares of Chinese technology companies contributed to the fall of the Asia-Pacific stock index. US futures fell after a two-day rise in Wall Street.

The rise in oil prices above $122 per barrel has heightened concerns about higher prices and tighter monetary policy. Sentiment also took a hit after Shanghai said it would put the area on lockdown for Covid testing on Saturday morning, the first major movement restriction since the city pulled out of curbs earlier this month.

Benchmark Treasury yields topped 3%, while 10-year New Zealand bond yields hit their highest level in seven years.

The dollar-yen pair remains dominant in currency markets, with the weak Japanese yen targeting a January 2002 high near 135.15. China can understand this trend as a competitive advantage, said Jim O’Neill, former chairman of Goldman Sachs Asset Management.

Data from China showed exports rose at a faster pace in May than the previous month as Covid-related disruptions eased. The offshore yuan has strengthened.

Markets remain focused on the risk of an economic slowdown caused by higher interest rates in most countries of the world to reduce price pressure.

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The OECD added to concerns by warning that the global economy would pay a heavy price for Russia’s war in Ukraine in the form of weaker growth, higher inflation and potentially long-term damage to supply chains.

“Our view is that the chance of recession by the end of 2023 is 40% or so,” Anna Khan, equity strategist at Wells Fargo Securities LLC, said on Bloomberg Television. She added that an “upward surprise” from the release of the US consumer price index on Friday could flatten the Treasury yield curve.

Meanwhile, the European Central Bank on Thursday is set to roll back trillions of euros in asset purchases ahead of an expected rate hike in July that will cement the path to an exit from an eight-year period of negative rates. The euro rose, while futures for European stocks fell.

“Chances are that the ECB will have a hawkish pivot today,” Carol Kong, a strategist at Commonwealth Bank of Australia, said on Bloomberg Television. “If we do see Christine Lagarde leaning toward a 50 basis-points hike in July, that’s going to be very supportive of the euro-dollar.”