Oil prices surged on Monday after Saudi Arabia and other OPEC+ oil producers announced a surprise round of output cuts, a potentially ominous sign for global inflation just days after a slowdown in U.S. price data had boosted market optimism.
The jolt to inflation expectations saw yields on U.S. two-year Treasuries rise 3 basis points to 4.104%, while Fed fund futures pared back expectations for rate cuts later in the year.
The market nudged up the probability of the Federal Reserve hiking rates by a quarter point in May to 61%, from 48% on Friday, and had 40 basis points of cuts priced in by year end. That in turn helped the dollar gain 0.25% on the Japanese yen to 133.14 , while the euro eased almost 0.4% to $1.0802 . The rise in oil prices is bad news for Japan's trade balance given it imports most of its energy.The outlook for U.S. rates could be impacted by data on ISM manufacturing and payrolls out this week, though the reaction to Friday's jobs report will be muted by the Easter holidays.
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