A look at the day ahead from Dhara Ranasinghe.
In a week that's seen U.S. Treasury yields dive as much as 20 basis points in three sessions and European stocks suffer one of their worst days in two months, perhaps investors are heeding the words from Taylor Swift's "You need to calm down."
Stock futures point to a brighter start for Europe, where indices were a sea of red just a day ago. U.S. 10-year Treasury yields are up 5 bps -- a sign that the relentless push into safe-haven debt markets of the last few days is abating.
Okay, so Asian shares are languishing at two-month lows on concerns that the spread of Delta variants will hurt world growth. But compared to the last few sessions, a sense of calm finally appears to be taking hold as the week draws to an end.
With the idea that reflation is dead or at least taking a break for now and surging variants of COVID-19 cast a shadow over the global economic recovery, a rethink has clearly taken place among investors.
Thursday's decision by the European Central Bank to set a new 2% inflation target, versus a previous below but close to 2%, left markets unfazed but was generally seen as pointing to an even longer period of central bank stimulus.
For some, the scale of the fast and furious moves in bond markets have gone too far and reflect a shake-out in positioning rather than a real shift in underlying economic conditions. Time will tell.
The Biden administration is set as early as Friday to add more than 10 Chinese companies to its economic blacklist over alleged human rights abuses and high-tech surveillance in Xinjiang, two sources told Reuters.
Any signs of resurgent tensions between the world's two biggest economies could of course quickly send investors back into safe-haven assets.
Key developments that should provide more direction to markets on Friday:
- China's factory gate inflation slows
- Morgan Stanley (NYSE:MS) faces data breach, corporate client info stolen in vendor hack
- UK economy grew by slower-than expected 0.8% in May
- UK May industrial output up 0.8% in m/m
- Canada June unemployment rate.
- ECB Andrea Enria participated in panel discussion
- Fitch Ratings review on Russia, Lithuania
- G20 kick off two-day summit in Venice, Italy.
Weekly move in 10-year sovereign bond yields https://graphics.reuters.com/GLOBAL-MARKETS/bdwvkoyaxvm/chart.png