Asian stocks hardly budged on Monday on the first day of a new quarter, while expectations of credit tightening by the world's major central banks kept global bond markets under pressure.
MSCI's broadest index of Asia-Pacific shares outside Japan ticked down 0.1 per cent, staying within a stone's throw of its two-year peak hit last week. Japan's Nikkei ticked up 0.2 per cent, while US stock futures gained 0.2 per cent.
European stock futures opened higher, with Germany's DAX futures up 0.6 per cent, France's CAC futures adding 0.9 per cent and Britain's FTSE futures advancing 0.4 per cent.
Pan-European Euro first 300 stock index hit a 10-week low on Friday after the European Central Bank and the Bank of England had last week signalled their readiness to tighten their monetary policies.
“Up until recently, only the Fed was tightening its policy. If the ECB is also jumping on to this, that is huge. We can't take this lightly,” said Arihiro Nagata, head of derivatives at SMBC Nikko Securities.
Bond yields
Global bond yields have risen sharply following hawkish comments from European Central Bank President Mario Draghi last Tuesday, with German bond yields posting their biggest weekly jump since December 2015 last week.
That helped to lift US bond yields from lows, with the 10-year US Treasuries yield hitting a 1-1/2-month high of 2.330 per cent on Monday.
The uptick in European bond yields could encourage European investors, who have been pouring their money on higher US yielding bonds, to put their money back in Europe.
The rise in US bond yields came even as data showed US inflation cooled in May. The annual rise in core consumer prices, excluding food and energy, slowed to 1.4 per cent, its lowest since December 2015.
“In coming weeks, whether we can see a recovery in the US momentum will be a key issue,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
On Wall Street, the S&P 500 scored its biggest gain for the first half of the year since 2013 while the Nasdaq Composite's first-half gain was its best in eight years.
Economic growth
Signs of stabilising in China's economy and a recovery in the European economy helped to boost global share prices in the first half of this year.
A private sector survey on China's manufacturing showed a surprise recovery in activity, adding to the evidence of steadying growth in the world's second largest economy.
The Bank of Japan's tankan corporate survey showed Japanese business sentiment improved slightly more than expected.
In the currency market, the euro traded at $1.1405, not far from last week's high of $1.1445, which was its highest level in more than a year as the common currency drew support from expectations that the ECB will likely scale back its stimulus.
Jens Weidmann, head of Germany's Bundesbank and a member of the ECB's rate-setting body, had said on Saturday that the ECB is working on moving away from its ultra-easy monetary policy.
The dollar traded at 112.58 yen, off Thursday's six-week high of 112.93. The yen briefly gained on worries Japanese Prime Minister Shinzo Abe's reflationary policies may be at risk after his Liberal Democratic Party suffered an historic defeat in a local election in Tokyo on Sunday, though the impact did not last long.
Crude oil
Oil prices held firm after having gained for seven consecutive sessions by Friday, after data on that day showed US oil rig count fell last week for the first time since early January.
Brent crude futures rose 0.2 per cent to $48.88 per barrel, while US crude futures gained 0.4 per cent to $46.20 per barrel.
Qatar crisis
In West Asia, Qatari shares slumped to 1-1/2-year lows on Sunday as a deadline for Doha to accept a series of political demands by four Arab states were expected to expire late in the day with no sign of the crisis ending.
Saudi Arabia and three allies accusing Qatar of supporting terrorism later agreed to a request by Kuwait to extend by 48 hours Sunday's deadline for Doha to comply, according to a joint statement on Saudi state news agency SPA.