HONG KONG/LONDON: US Treasury yields were heading back towards 5 per cent on Wednesday, dragging shares around the world to multi-month lows in the middle of a busy week for corporate earnings, with an ECB meeting and the release of US GDP to come later in the day.
A rebound in US home sales and an auction of five-year notes that showed weak demand were the latest trigger for concern in the bond market, which saw the US 10 year Treasury yield rise 11 basis points on Tuesday.
That move continued on Wednesday, with the benchmark yield reaching 4.989 per cent, challenging the 5.021 per cent —the highest since 2007 — hit earlier in the week
“The Treasury market is clearly very much top of mind, the big back up in yields yesterday appeared to have quite a negative impact on equities as well, so how that evolves and how it reacts to data we have this week will be the big swing factor for global markets,” said Kiran Ganesh global head of investment communications at UBS Wealth Management. US third quarter GDP, released later today, is unlikely to provide help for the bond market as it is expected to show the US economy grew at its fastest quarterly pace in two years, and so offer nothing to derail expectations the Fed will keep rates high for longer.
Friday’s personal consumption expenditure (PCE) price index, the Fed’s preferred inflation gauge, is also top of mind, as is Thursday’sEuropean Central Bank meeting, at which they are expected to snap a 15-month streak of hikes, but keep rates at record highs.
EARNINGS FOCUSEurope’s broad STOXX index was down 0.8 per cent in morning trading, just off seven-month lows hit earlier in the week, and MSCI’s broadest index of Asia-Pacific shares outside Japan hit an 11-month low.
US Nasdaq futures were down 1.2 per cent and S&P 500 futures off 0.7 per cent, even after all three main US Benchmarks had closed on Wednesday sharply lower.
Ganesh said there were three main things pushing stocks lower.
“Clearly high yields are reflecting concerns that rates will have to stay high for longer, and that won’t be good for the economy longer term, high yields are also competing for equity market investment, and the start of the earnings season has been a mixed bag, but generally on the negative side.”
European banks were the big earnings story on Wednesday, with Standard Chartered at one point falling over 17 per cent, BNP Paribas fell 4 per cent and Swedbank 7 per cent all after results.The broader European banking index fell as much as 2.4 per cent to its lowest in four months, with Spain the only positive.
Alphabet shares logged their worst session since March 2020 overnight, dropping 9.5 per cent as investors were disappointed with stalling growth in its cloud division.
Shares in Facebook parent Meta fell 4 per cent on Wednesday and another 3 per cent in after-hours trade after publishing results showing better-than-expected revenue but a cloudy outlook, with expenses seen topping Wall Street estimates.
In currency markets, the dollar index hit a two-week high of 106.7, driven by the higher yields, and the yen weakened past 150 per dollar, a level that has put traders on guard for intervention to support the Japanese currency, and to a 10-month low of 150.78 per dollar.
Oil prices slipped. US crude dipped 0.6 per cent to $84.89 a barrel. Brent crude fell 0.4 per cent to $89.80 per barrel.
Oil rose about 2 per cent on Wednesday on worries about the conflict in the Middle East, but gains were capped by higher US crude inventories and gloomy economic prospects in Europe.
— Reuters
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