Bonds haunted by old and new uncertainties
Tom Westbrook provides an update on the European and global markets for the day ahead.
It appears to be the worst week of a bad year for bonds.
The benchmark 10-year Treasury yield has risen 31 basis points since last Friday and briefly touched 5% in New York, sparking a new wave of what Spectra Markets’ Brent Donnelly noted have become familiar stocks : “reaches its highest (lowest) level since 2007”.
Soaring yields are pushing up mortgage rates, likely leading to painful losses for many investment funds and banks, which in turn could dampen lending to the economy.
It is also driving up borrowing costs across developed countries and sucking much-needed money out of emerging markets, while raising the bar for buying stocks.
Measured by the MSCI Asia ex-Japan index, Asian stocks hit their lowest level in 11 months on Friday. Oddly, the dollar has not risen with the latest jump in yields, perhaps because currency traders see a recession looming on the horizon.
Fed Chairman Jerome Powell didn’t say much that markets didn’t already know on Thursday, but by keeping his options open he kept pressure on bonds.
“A range of uncertainties, old and new, complicate our task of balancing the risk of too much monetary policy tightening with the risk of too little tightening,” he said.
“We will make decisions (…) based on all the data received, the evolution of the outlook and the balance of risks.
US President Joe Biden asked Americans to spend billions more to help Israel fight Hamas, while Israel’s defense chief told his troops to be ready to enter the Gaza Strip.
In September, Japan’s core inflation slowed below the 3% threshold for the first time in more than a year, but remained above the central bank’s target, and bonds sold off strong enough to force the Bank of Japan to take market action.
China, the world’s largest producer of graphite, said on Friday it would require permits for the export of certain graphite products, used in electric car batteries.
We will know at the opening in London whether yesterday’s incident, which derailed trading in small and mid-cap stocks on the stock exchange on Thursday, has been resolved. UK retail sales data is also due, ahead of a handful of Fed speakers.
Elsewhere, inflation has arrived on the Formula One track, with drivers stunned to see the sport’s governing body increase the maximum fine stewards can impose to one million euros.
Have North American pests seen happy days? Shares of Rentokil fell more than 18% on Thursday after the company said economic conditions had dampened its pursuit of new customers in North America.
This article is originally published on zonebourse.com
