Bonds yields were little changed Monday, as investors digested the previous week’s wave of data releases and questioned whether the U.S. Federal Reserve may slow its tightening cycle on improved inflation news.

The yield on the benchmark 10-year Treasury note was just 1.4 basis points lower at 2.837%, while the yield on the 30-year Treasury bond dipped by less than 1 basis point to 3.111%. Yields move inversely to prices, and a basis point is equal to 0.01%.

The previous week brought a raft of economic data, including more positive news on inflation than many in the markets were expecting. Data last week revealed imports down slightly more than expected, lower export prices and higher-than-forecast consumer sentiment in a preliminary August reading from the University of Michigan’s index.

The steady climb in U.S. consumer prices also slowed to an 8.5% year over year rise in July, data from last week showed, which was slightly less than expected due to a decrease in oil prices.

Still, the Fed has yet to adopt the bond market’s apparent outlook that the rate hiking cycle is almost over.

Investors will be looking ahead this week to housing data, including housing starts, mortgage applications and building permits, as well as retail sales, industrial production, manufacturing production and year-on-year Redbook data. The Redbook index is a measure of yearly sales-weighted growth across 9,000 U.S. retailers.

Fed Governor Christopher Waller is scheduled to speak at the week-long 2022 Summer Workshop on Money, Banking, Payments, and Finance in Washington D.C. hosted by the Federal Reserve Board of Governors.

KEY POINTS

• Russian President Vladimir Putin claimed that America wants to drag out the war in Ukraine.
• “The situation in Ukraine shows that the U.S. is trying to prolong this conflict,” he said during an address at a conference on international security.
• Putin also claimed that the U.S. was trying to maintain its hegemonic status in the world and that it had implemented an “anti-Russian” project.
  

Russian President Vladimir Putin slammed the U.S. and wider West, claiming Tuesday that America wants to drag out the war in Ukraine.

“The situation in Ukraine shows that the U.S. is trying to prolong this conflict,” he said during a welcome address at a conference in Moscow on international security, Russian state news agency Interfax reported.

Putin also claimed that the U.S. was trying to maintain its hegemonic status in the world and that the West wanted to extend its “bloc system” of defense, such as the NATO military alliance, into Asia.

“We also see that the collective West is seeking to extend its bloc system to the Asia-Pacific region similarly to NATO in Europe. For this purpose, bellicose military-political alliances are being formed, such as AUKUS and the others,” Putin claimed, referencing the trilateral security pact between Australia, the U.K. and U.S. that was signed last year.

In addition, he said U.S. House Speaker Nancy Pelosi’s recent visit to Taiwan, which angered Russia’s ally China, had been a “thoroughly planned provocation,” saying such a “reckless” trip was “part of a purposeful, conscious strategy of the United States to destabilize and chaotize the situation in the region and the world” and “an insolent demonstration of disrespect for the sovereignty of other countries and for its international obligations.”

Putin once again defended Moscow’s unprovoked invasion of Ukraine, claiming it was being carried out “to ensure the security of Russia and our citizens.”

Russia claims its onslaught in Ukraine, which it calls a “special military operation,” is aimed at “liberating” pro-Russian, breakaway regions in the Donbas in eastern Ukraine which it has supported since 2014.

Russia’s latest, full-scale invasion of Ukraine has caused widespread destruction, death and displacement among the civilian population of the country. The United Nations said Monday that at least 5,500 civilians have been killed in the fighting although the true number is likely to be far higher, given the chaotic nature of recording such data during times of war.

Russia’s invasion has also prompted international condemnation and swathes of wide-ranging economic sanctions on the country’s key sectors, companies and individuals connected to the Kremlin.

The Russian leader’s obsession with Ukraine is long-standing and he has repeatedly extolled the unity of Russians and Ukrainians, while at the same time deploring the country’s pro-Western government under President Volodymyr Zelenskyy.

Political analysts have told that Putin’s claims directed toward the Ukrainian government are nonsense, reflecting an irrational and ill-judged attitude toward the leadership in Kyiv and its direction. Western officials and close followers of Russia also see Putin’s comments, and his version (and often revisionist view) of history as an attempt to create false and misleading narratives.

The U.S. and its European allies in NATO have sought to assist Ukraine’s defense of its territorial sovereignty with assistance in the form of weapons, financial and humanitarian aid, saying that Russia must not be allowed to succeed in its territorial grab for Ukraine.

Russia has said the West’s help for Ukraine is the culmination of years of anti-Russian sentiment, however, and has blamed NATO for starting the war.

Europe’s security system
The lead-up to the war in Ukraine began in late 2021 with Russia amassing more than 100,000 troops at the border with its smaller neighbor, all the while insisting it had no plans to invade.

Russia demanded guarantees from NATO in December 2021 that Ukraine would not be allowed to join the military alliance in the future (despite there being no tangible plans for it to do so) and demanded that NATO roll back its military presence in Eastern Europe. It also sought guarantees that the military alliance would not expand further toward Russia’s border, again, despite there being no prospect of an expansion — at that time.

NATO officials said there was room for negotiation but rejected Russia’s main demands and on Feb. 24, Russia launched a full-scale invasion, widely seen as believing it was capable of a quick victory in Ukraine and the overthrow of its pro-Western government.

Almost six months on and the war shows no signs of ending anytime soon, with Ukraine’s forces bolstered with heavy weaponry from the West — particularly U.S.-donated HIMARS or High Mobility Artillery Rocket Systems, that are making a tangible difference in the direction of the war.

The invasion has had other dramatic, unintended consequences for Moscow with NATO uniting more strongly than ever. European defense spending laggards, like Germany, have also pledged to up such purchasing in direct response to Russia’s aggression.

What’s more, traditionally nonaligned countries Sweden and Finland have now applied to join NATO, roughly doubling the land border Russia shares with NATO countries. Unsurprisingly, Moscow has condemned the expansion and threatened to retaliate without openly stating what form that could take.

Despite its invasion of Ukraine, Russia has blamed the West for changing Europe’s security architecture and on Tuesday, Putin said in his speech that “the so-called collective West is purposefully destroying the system of European security, putting together new military alliances.”

“The NATO bloc is moving east, building up its military infrastructure, including deploying missile defense systems and increasing the strike capabilities of offensive forces,” he said.

“In words, this is hypocritically declared to be a need to strengthen security in Europe, but in reality, just the opposite is happening,” he said. “The proposals put forward by Russia in December last year on measures of mutual security were simply ignored once again,” he added.

Timothy Ash, a senior emerging markets sovereign strategist at BlueBay Asset Management, rebuffed Putin’s comments in emailed comments Tuesday, saying there were multiple instances of Russia seeking to destabilize the European security system, from sponsoring unrest in former Soviet republics such as Georgia and Moldova to its intervention in the Syrian civil war and use of biological weapons against critics of the Kremlin.

“Russia intervened in Syrian civil war with precise intention of creating a refugee wave into Europe to destabilise the continent. Putin backs far left and far right parties in Europe. Russia now restricts energy supply to Europe to create energy shortages and social and political unrest. But it the West purposely undermining European security,” Ash said.

U.S. Treasury yields were slightly lower on Thursday ahead of the Federal Reserve’s annual meet in Jackson Hole, Wyoming.

The yield on the benchmark 10-year Treasury note dipped 1.5 basis points to 3.09% after rising on Wednesday. The 10-year yield climbed above the 3% level for the first time in a month earlier this week.

The yield on the 30-year Treasury bond fell 1 basis point to 3.30%, while the yield on the short-term 2-year Treasury note dropped 1 basis points to 3.374%. Yields move inversely to prices, and a basis point is equal to 0.01%.

Investors will be keenly watching for news from the economic symposium, which is expected to deliver an indication of the U.S. central bank’s position on the extent of further rate hikes needed to combat inflation.

Thursday morning will also see the publication of the latest economic data on initial jobless claims, real gross domestic product figures and GDP prices.

Fed Chair Jerome Powell will deliver a speech at 10 a.m. ET on Friday.

“Powell is likely to stress that policy still has a long way to go before the Fed will feel comfortable it has decisively turned the corner on restoring price stability,” Luke Bartholomew, senior economist at Abrdn, said in an email.

“This is important because the market has behaved recently as if the Fed has pivoted away from its hawkish stance.”

The U.S. dollar has eased against a basket of major currencies this week, sending gold prices to a one-week high as markets await further cues from the Fed.

The U.S. Treasury will auction $55 billion in 4-week bills, $50 billion in 8-week bills and $37 billion in 7-year notes.

KEY POINTS

• Gold prices fell for a sixth straight session on Monday to hit their lowest in more than three weeks, weighed down by a robust dollar and expectations of further interest rate hikes from the U.S. Federal Reserve to tame surging inflation.
• Spot gold was down 0.1% at $1,746.06 per ounce, as of 0131 GMT, after hitting its lowest since July 28 at $1,743.83 in early Asian trading. Spot silver gained 0.2% to $19.06 per ounce, platinum fell 0.3% to $893.38, and palladium rose 0.2% to $2,129.21.
  

Gold prices fell for a sixth straight session on Monday to hit their lowest in more than three weeks, weighed down by a robust dollar and expectations of further interest rate hikes from the U.S. Federal Reserve to tame surging inflation.

Fundamentals
Spot gold was down 0.1% at $1,746.06 per ounce, as of 0131 GMT, after hitting its lowest since July 28 at $1,743.83 in early Asian trading. The metal lost nearly 3% last week.

U.S. gold futures eased 0.2% to $1,758.80.

The dollar rose 0.1% to a more one-month high against its rivals, making gold more expensive for buyers holding other currencies.

The Fed will raise rates by 50 basis points in September amid expectations inflation has peaked and growing recession worries, according to economists in a Reuters poll.

Traders are now pricing in around a 46.5% chance of a 75-basis-point rate hike in September and a 53.5% chance of a 50-bp increase.

The U.S. central bank needs to keep raising borrowing costs to bring high inflation under control, a string of its officials said last week.

Gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity cost of holding non-yielding bullion.

Focus this week will be on comments by Fed Chair Jerome Powell when he addresses an annual global central banking conference in Jackson Hole, Wyoming, on Friday.

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings rose 0.32% to 989.01 tons on Friday from 985.83 tons on Thursday.

Gold demand in India improved last week as domestic prices dropped to a more than two-week low, while volumes were somber in other Asian centers.

Spot silver gained 0.2% to $19.06 per ounce, platinum fell 0.3% to $893.38, and palladium rose 0.2% to $2,129.21.

KEY POINTS

• Inflation in the euro zone hit 9.7% in August and with the continued pressure on energy prices it’s expected to reach double-digit levels in the coming months.
• At the same time the risk of a recession is looming large over the region’s economy as consumers feel the pain and scale back their consumption, and companies struggle with high energy prices.
  

FRANKFURT, Germany — The European Central Bank is expected to frontload a series of rate hikes and sacrifice growth in the region due to the rising cost of living which is threatening to surge even higher.

ECB Executive Board Member Isabel Schnabel’s speech in Jackson Hole set the tone for the upcoming policy meeting this week. With inflation in the euro zone projected to rise to at least 10% in the coming months and the risk of consumer prices rocketing higher, a “jumbo” rate hike of 75 basis points on Thursday is certainly a possibility.

“As frontloaded hikes can have a bigger impact on inflation expectations than a more gradual approach, a 75bp move could make sense,” said ECB watcher and Berenberg’s Chief Economist Holger Schmieding in a research note.

“Although it is largely priced in, it could still exacerbate strains in the bond markets.”

The recent halt of gas deliveries to Europe via the Nord Stream 1 pipeline has not only pushed stocks lower and increased the risk of a recession in Europe, it’s also pushed Italian government 10-year yields to 4% — the highest level since mid-June before the ECB announced the creation of an anti-fragmentation tool. High yields for Italy — much higher than those in Germany — mean the government in Rome has to pay more to borrow, exacerbating concerns over its hefty debt pile.

Inflation in the euro zone hit 9.7% in August and with the continued pressure on energy prices it’s expected to reach double-digit levels in the coming months. At the same time the risk of a recession is looming large over the region’s economy as consumers feel the pain and scale back their consumption, and companies struggle with high energy prices.

“While governments will partially ‘foot the bill’, there are limits to what extent the private sector can be shielded from this income shock,” said Dirk Schumacher with Natixis in a research note to clients.

“The drop in consumer confidence to a record low over the last months, indicates that households are aware of these limits with respect to government support. There is also increasing evidence that companies in energy intensive sectors are reducing production.”

Quantitative tightening
Because of the inflation outlook, the ECB is expected to sacrifice growth in order to keep inflation expectations anchored, as this is the bank’s core mandate.

“A key take away from recent comments by ECB officials is that the hiking cycle will be less sensitive to recession than we thought,” said Deutsche Bank’s Chief Economist Mark Wall in a research note.

“We raised our terminal rate forecast by 50bp to 2.5%,” he added. The ECB’s benchmark rate is currently at zero.

The Frankfurt institution believes its “neutral” rate — an optimal level for a steady economy — to be between 1% and 2% and with inflation risk rising the ECB’s Governing Council might need to consider raising rates above that level into tightening territory.

That, of course, also raises the question about quantitative tightening — which is the technical description for shrinking the central bank’s balance sheet. Selling assets has not yet been discussed by the ECB.

“Given the threat to the ECB’s credibility, we also wonder why quantitative tightening is not discussed,” Anatoli Annenkov of Societe Generale, said in a research note. “Not using QT should imply higher rates.”

KEY POINTS

• Russia claims punitive economic sanctions imposed by the West are responsible for the indefinite halt to gas supplies via Europe’s main pipeline.
• It represents the clearest indication yet that the Kremlin is seeking to force Europe to lift the economic measures in order for Moscow to turn the taps back on ahead of winter.
• “This latest move has significantly increased the risk that Europe may not get further gas flows through Nord Stream 1 for the whole winter,” analysts at energy consultancy Rystad Energy said in a research note.
  

Europe has been thrown into its biggest energy crisis in decades with natural gas supplies from Russia becoming volatile and unpredictable even before the invasion of Ukraine began. Now, those supplies have come to a complete halt.

Russia claims punitive economic sanctions imposed on it by the West are responsible for the indefinite halt to gas supplies via Europe’s main pipeline.

“Problems in pumping arose because of the sanctions imposed against our country and against a number of companies by Western states, including Germany and the U.K.,” Kremlin spokesman Dmitry Peskov told reporters on Monday, according to Russian state news agency Interfax.

Asked whether pumping gas via Nord Stream 1 was completely dependent on the sanctions and that supplies would resume if these were lifted or relaxed, Peskov replied, “Of course. The very sanctions that prevent the maintenance of units, which prevent them from moving without appropriate legal guarantees, which prevent these legal guarantees from being given, and so on.”

“It is precisely these sanctions that the Western states have introduced that have brought the situation to what we see now,” Peskov added.

Coming directly from the Kremlin, such comments represent the clearest indication yet that Russia is seeking to pressure Europe to lift the economic measures, brought in to punish Russia over its unprovoked invasion of Ukraine, in order for the taps to be turned back on ahead of winter.

European lawmakers have repeatedly accused Russia, traditionally its largest energy supplier, of weaponizing energy exports in an attempt to drive up commodity prices and sow uncertainty across the 27-nation bloc. Moscow denies using energy as a weapon.

Russia’s state-owned energy giant Gazprom halted all exports via Nord Stream 1 from Aug. 31, citing maintenance works on its only remaining compressor.

However, while flows were due to resume after three days, Gazprom on Friday cited an oil leak for the indefinite shutdown of the pipeline. The shock announcement came hot on the heels of a joint statement from the G-7 economic powers backing a proposal to put a price capping mechanism on Russian oil.

In what energy analysts see as an escalation of Russia’s bid to inflict economic pain on the region, the Kremlin has since said that the resumption of gas supplies to Europe is completely dependent on Europe lifting its economic sanctions against Moscow.

The halt to supplies via the Nord Stream 1 pipeline, which connects Russia to Germany via the Baltic Sea, prompted European gas prices to jump on Monday, with many fearful that parts of Europe could be forced to ration energy through the winter. It has also exacerbated the risk of recession in the region.

Gazprom vs. Siemens Energy
Meanwhile, Gazprom’s Deputy CEO Vitaly Markelov told Reuters on Tuesday that gas flows via the Nord Stream 1 pipeline would not continue until Germany’s Siemens Energy repairs faulty equipment.

Siemens Energy was not immediately available to comment when contacted on Tuesday.

However, the company told Reuters that it’s not currently commissioned by Gazprom to do maintenance work on the turbine with the suspected oil leak, but said it remains on standby to do so.

Siemens Energy added that it “cannot comprehend this new representation based on the information provided to us over the weekend.”

Mark Dixon, founder of the Moral Rating Agency, a research organization focused on foreign firms in Russia, said Gazprom blaming Siemens Energy for the gas supply cut was “yet another example of a state lie from the Russian Federation.”

“Russia lied its way into the invasion and has lied ever since,” Dixon said. “Gazprom is Russia, make no mistake. It has no choice but to lie in chorus with [Russian President Vladimir] Putin.”

Russia has drastically reduced gas supplies to Europe in recent months, with flows via the pipeline operating at just 20% of the agreed-upon volume before the indefinite suspension.

“Russia’s move to again cut gas supply to the EU just as the region scrambles to fill its inventories ahead of winter is a further escalation of its policy of the past months to inflict economic pain through repeated supply cuts to Germany, the EU’s biggest economy and gas consumer,” analysts at political risk consultancy Eurasia Group said in a research note.

“Sources in Berlin say they are now making all winter energy plans on the assumption of zero supply from Russia,” they added. “That means there will now also be a focus on central and southern Europe, which still receives Russian gas including through pipeline transit of Ukraine and Turkey.”

Winter is coming
European policymakers are currently racing to secure gas supplies in underground facilities in order to have enough fuel to keep homes warm during the colder months.

Energy analysts say Russia’s latest move to suspend gas flows via Europe’s major supply route could exacerbate what was already likely to be an extremely challenging winter period.