LONDON – Bond yields resumed their rise on Thursday as investor bet on aggressive global interest rate hikes, while the euro climbed after a heated TV debate saw French President Emmanuel Macron bolster his weekend re-election hopes.

MSCI’s main world stock market index barely mustered a move amid the prospect of higher global borrowing costs, but Paris stocks scored a 1.1 percent jump after Wednesday evening’s clash between Macron and far-right rival Marine Le Pen.

Most 10-year bond yields across Europe rose sharply again, with Germany’s benchmark Bund yields heading back towards a seven-year peak and Italy’s hitting their highest since March 2020’s initial COVID-19 panic.

Markets are expecting at least another half-percentage-point rate hike from the US Federal Reserve next month while one European Central Bank policymaker had said on Wednesday that it might start hiking euro zone rates as early as July.

Citi’s Global Markets Strategist Matt King said that the pressure for markets was also coming from quantitative tightening, or QT – the process of years of frantic central bank money-printing going into reverse.

That process is just about to start and over the next year he estimates it will see around half a trillion dollars being sucked out of the global financial system by the US Fed alone.

“Don’t look at the real yields, look at the liquidity flow,” King said, adding that a rough calculation was that $1 trillion of QT would knock global stocks down by around 10 percent.

“These flows are just too big for markets to anticipate ahead of time,” he said.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.6 percent lower, despite gains in Korea and Australia, where the local benchmark rose 0.4 percent to not far off a record peak.

Japan’s Nikkei also jumped 1.2 percent as the yen hovered near its recent 20-year low.

Deutsche Bank’s chief economist David Folkerts-Landau meanwhile warned that a late-2023 US recession was now a baseline scenario.

“Prepare for a hard landing,” he said, flagging the possibility of a Fed funds rate in the 4.5-5 percent range and euro zone rates at 2-2.5 percent.

Deutsche Bank also noted that the extent of Fed hikes priced in by December had hit a fresh high of 227 bps. When added to the 25 bp hike from last month, that implies the Fed will tighten by more than 260 bps for the year as a whole – more than the 250 bps seen back in 1994.

Treasury 10-year yields had dived 11 basis points on Wednesday, but were back up to 2.874 percent in Europe. Nasdaq futures were also up over half a percent as upbeat Tesla earnings helped ease the stress of Netflix’s brutal slump this week.

The streaming company’s losses now stand at 62 percent this year, making it the worst performer in the entire S&P 500 on a year-to-date basis.

In the currency markets, the euro rose 0.6 percent to above $1.09 again and also chalked up gains versus the Japanese yen, Swiss franc and Norwegian crown.

The dollar meanwhile gained 0.2 percent on the yen which has hit 20-year lows in recent days, hurt by the Bank of Japan promise to keep government bond yields there pinned down despite rises elsewhere around the world.

“The euro is all about ECB drumbeat for a July hike,” said Kenneth Broux, an FX strategist at Societe Generale in London.

Oil meanwhile firmed in choppy commodity trading as concerns about supply due to a potential European Union ban on Russian oil came to the fore.

Brent crude futures rose 1.54 percent to $108.44 a barrel, although European natural gas prices fell 1.2 percent 96.5 euros.