Stocks wobbled as U.S. Treasury yields resumed their rise, heading back toward the 16-year highs reached the previous day.
Europe’s Stoxx 600 index swung between gains and losses, trading close to six-month lows, while index futures on the S&P 500 were flat. U.S. yields edged two basis points higher, after rising by about 10 basis points the previous day.
The benchmark 10-year yield has advanced some 140 basis points from its April low, as expectations of interest rate cuts from the Federal Reserve gradually faded. Instead, a robust U.S. economy and labor market is causing markets to price a one-in-three chance of a rate hike in November. That has pressured equity markets, with the S&P 500 enduring two months of losses.
“We had not anticipated such an increase in rates,” said Vincent Juvyns, global market strategist at JPMorgan Asset Management. “This is something which will at least slow down, or even reverse the progress of equity markets.”
Monday’s Treasury selloff came after U.S. lawmakers managed to avert a government shutdown, prompting traders to increase bets that the Fed could up rates in November. Comments from two Fed policymakers reinforced that view, with Cleveland Fed president Loretta Mester saying one more rate hike was likely needed and Governor Michelle Bowman urging multiple increases.
On Tuesday, bond proxies such as utilities were hard hit in Europe, while retail stocks were dragged down on a warning from online retailer Boohoo Group Plc. Boohoo shares fell 10 per cent. In U.S. premarket trading, Tesla Inc. dipped after third-quarter delivery numbers missed estimates. Another tech name, Airbnb Inc. slid almost two per cent.
“The market is probably evenly split on whether central banks will need to continue raising rates or not so the bond marker is testing investors,” said Brian O’Reilly, head of market strategy at Mediolanum International Funds. “With 10-year yields around 4.6 per cent, the asset allocation decision for equities is getting quite difficult.”
On currency markets, the dollar rose against a basket of G-10 peers, while the Australian dollar slipped after the central bank held interest rates unchanged for the fourth meeting.
Key events this week:
- China has week-long holiday
- Atlanta Fed President Raphael Bostic speaks on economic outlook and inflation, Tuesday
- U.S. August JOLTS report, Tuesday
- New Zealand rate decision, Wednesday
- Eurozone services and composite PMIs, Wednesday
- ECB President Christine Lagarde gives welcome address at conference, Wednesday
- US ISM services index, Wednesday
- France industrial production, Thursday
- BOE Deputy Governor Ben Broadbent, Riksbank First Deputy Governor Anna Breman participate at panel discussion, Thursday
- U.S. trade, initial jobless claims, Thursday
- San Francisco Fed President Mary Daly speaks at the Economic Club of New York, Thursday
- Germany factory orders, Friday
- U.S. unemployment rate, nonfarm payrolls, Friday
- The Stoxx Europe 600 fell 0.2 per cent as of 10:46 a.m. London time
- S&P 500 futures were little changed
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index fell 1.5 per cent
- The MSCI Emerging Markets Index fell 1.1 per cent
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1 per cent to US$1.0490
- The Japanese yen was little changed at 149.85 per dollar
- The offshore yuan was little changed at 7.3218 per dollar
- The British pound was little changed at US$1.2086
- Bitcoin fell 1 per cent to US$27,572.69
- Ether fell 0.2 per cent to US$1,662.33
- The yield on 10-year Treasuries advanced two basis points to 4.70 per cent
- Germany’s 10-year yield advanced two basis points to 2.94 per cent
- Britain’s 10-year yield declined one basis point to 4.55 per cent
- Brent crude was little changed
- Spot gold was little changed
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