LONDON - Signs that the Bank of Japan (BoJ) might scale back its monetary stimulus faster than expected sent tremors through bond markets on Monday, while European stocks and U.S. futures slipped as threats of further U.S. tariffs on China drained risk appetite.
Europe's bond yields climbed after a Reuters report that the BoJ was discussing modifying its huge easing programme sent Japan's 10-year bond yield to a six-month high.
The report rekindled anxieties about monetary stimulus easing around the world and piled further pressure on investors already struggling to navigate rising protectionism.
The yield on Europe's benchmark bond, the German 10-year Bund, hit a one-month high of 0.39 percent and U.S. 10-year Treasury yields also hit their highest in a month at 2.90 percent.
The yen climbed to two-week highs against the dollar and was last up 0.3 percent at 111.05 per dollar.
"It's all that concern investors have about the move from global quantitative easing to global quantitative tightening. That fear gets stoked when you have reports such as this," Psigma Investment Management's head of investment strategy, Rory McPherson, said.
"The ECB meeting this week will be more in focus now that we've had this concern about Japan."
The dollar index languished near the two-week low it hit after U.S. President Trump criticised the Federal Reserve's tightening policy and accused the European Union and China of manipulating their currencies.
Beijing said it has no intention of devaluing the yuan to help exports.
"We see the latest news on trade policy as pointing to continued high risk of escalation between the U.S. and China, and a renewed focus of the Trump Administration on currency matters," Goldman Sachs analysts said.
Trump's comments about rates also helped the Treasury yield curve reach its steepest in three weeks. The yield curve's flattening has been seen by some as a sign of an impending recession.
The U.S. president's new threats to slap duties on all $500 billion of U.S. imports from China triggered sell-offs across stock markets, though good earnings kept a lid on losses.
S&P 500 and Dow Jones benchmark futures were flat, while futures for the tech-heavy Nasdaq fell 0.2 percent by 1205 GMT, indicating a tepid start for Wall Street.
Europe's STOXX 600 fell 0.1 percent by 1205 GMT as investors braced for a packed earnings week and a meeting between European Commission President Jean-Claude Juncker and Trump to discuss threatened tariffs which may affect carmakers.
"The pattern of Trump's meetings has generally been more conciliatory when he meets in person. It could actually be good for autos," Psigma's McPherson said.
Europe's autos sector was down 0.7 percent, hitting a 2-1/2 week low. The index is down 9 percent this year and is among the worst-performing European sectors.
Goldman Sachs analysts said auto tariffs, if they came to pass, were likely to cause weakness in the Canadian dollar and Mexican peso, possibly also affecting the euro, pound, yen, and Korean won as investors priced in a hit to the economy.
"The global economy is still okay, but the risk is now very high, and if trade policies don't make a U-turn very soon, we'll see a measurable impact on growth already next year," UniCredit chief economist Erik Nielsen said.
Concerns about growth affecting demand for fuel had dented crude prices in early trading, but oil rose again as tensions worsened between Iran and the U.S. and a rig workers' strike caused potential supply disruption. [O/R]
U.S. crude rose 1.1 percent to $69.04 a barrel after posting its third straight weekly loss. Brent crude climbed 1.4 percent to $74.08 a barrel.
Around 40 rig workers started a 24-hour strike on three North Sea oil platforms operated by Total, curbing gas flows to shore.
In metals, copper - among the most sensitive to trade tensions - rose 0.7 percent from a one-year low hit last week, trading at $6,192.5 a tonne.
Emerging market equities eased 0.1 percent as the dollar recovered. Dollar strength has driven selling in emerging market stocks this year, putting pressure on emerging economies with large dollar-denominated debt piles.