A man stands on an overpass with an electronic board showing Shanghai and Shenzhen stock indices, at the Lujiazui financial district in Shanghai, China January 6, 2021. REUTERS/Aly Song//File Photo

SYDNEY, April 4 (Reuters) – Asian stock markets got off to a cautious start on Monday amid talk of even more sanctions on Russia for its invasion of Ukraine, as bond markets continued to probe the risk of a hard landing for the US economy as short-term yields surged.

A holiday in China slowed trading, and MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 0.1%.

The Japanese Nikkei (.N225) was flat, while S&P 500 stock futures were down 0.2% and Nasdaq futures were down 0.3%.

As Russian-Ukrainian peace talks dragged on, reports of Russian atrocities led Germany to say the West would agree to impose more sanctions in the coming days. Read more

Germany’s defense minister also said the European Union should discuss banning the import of Russian gas, a move that is likely to drive prices up even further while forcing some kind of energy rationing in Europe. . Read more

Data released last week showed inflation in the EU had already reached a record high, putting pressure on the European Central Bank to rein in runaway prices even as growth slows sharply.

“It really does seem like it’s time for the ECB to act,” ANZ analysts warned in a note. “While the ECB will be cautious about raising rates, it certainly looks like it should act sooner to scrap its QE program.”

The US Federal Reserve has already risen and is expected to do much more after Friday’s strong March payrolls report. Many Fed officials are due to speak at public events this week, with the prospect of more hawkish noise, and minutes from the latest policy meeting are due Wednesday.

“We now expect the Fed to hike 50 basis points in May, June and July, before slowing the pace slightly with 25 basis point hikes in September, November and December,” Kevin said. Cummins, chief US economist at NatWest Markets.

“This will bring the funds rate into earlier restrictive territory, with 2.50-2.75% by the end of 2022.”

Investors reacted by hammering short-term Treasuries and further inverting the yield curve as the market weighed the risk that all this tightening would eventually lead to recession.

On Monday, two-year yields were up to three-year highs of 2.49% and well above the 10-year at 2.410%.

Rising yields supported the US dollar, especially against the yen as the Bank of Japan acted repeatedly over the past week to keep bond yields close to zero.

The dollar was trading firm at 122.63 yen and not far from its recent seven-year high at 125.10. The euro drifted to $1.1041 and could fall further if the EU actually acts to stop gas flows from Russia, which calls its action in Ukraine a “special operation”.

The dollar index was last at 98.617, having recently bounced between 97.681 and 99.377.

Rising bond yields around the world dampened non-yielding gold, and the metal remained stuck at $1,923 an ounce.

Meanwhile, oil prices tumbled after the United Arab Emirates and the Iran-aligned Houthi group welcomed a truce that would end military operations on the Saudi-Yemeni border, alleviating concerns over d possible supply problems.

Oil fell 13% last week – the biggest weekly drop in two years – after US President Joe Biden announced the biggest ever release of oil reserves in the United States.

Brent crude was last traded down 86 cents at $103.53, while U.S. crude was down 80 cents at $98.47.

Editing by Kenneth Maxwell

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