Stocks down for third day, yields soar as markets brace for rate hikes

(Correct the day in the first paragraph)

FILE PHOTO: The London Stock Exchange Group offices are seen in the City of London, Great Britain, on December 29, 2017. REUTERS / Toby Melville

LONDON (Reuters) – Global equities fell for a third day in a row on Tuesday, while bond yields and measures of inflation expectations on both sides of the Atlantic soared on anxiety over when central banks might raise rates. of interest.

MSCI’s All Country World Index, which tracks stocks in 49 countries, was down 0.36% the day after trading began in Europe.

The 10-year US Treasury yield reached 1.5444%, its highest level since June 17, pushing euro zone bond yields up in its wake. Two-year Treasury yields rose to 18-month highs. [US/] [GVD/EUR]

A market measure of euro zone inflation expectations jumped to 1.8308%, its highest level since 2015. The 10-year yield on US Treasury Inflation Protected Securities (TIPS) increased to – 0.82%, its highest level since the end of June.

“The sell-off in the bond markets is related to markets that read recent statements from the Fed and Bank of England as more aggressive towards the timing of rate hikes,” said Sarah Hewin, Senior Economist at Standard Chartered Bank .

Powell’s comments yesterday seem to indicate more nervousness about inflation and have had an impact on Treasury yields. This uncertainty about how transitory the so-called transitory factors are in addition to the increases in energy prices seems never to be accentuated by the fact that inflation takes hold ”.

Policymakers at the U.S. Federal Reserve projected last week that policymakers are set to raise rates in 2022 and the bank is likely to start cutting its monthly bond purchases starting in November.

US Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen will testify at a congressional hearing in the US at 1400 GMT. Particular attention will also be paid to European Central Bank politicians speaking at the ECB’s central banking forum, starting with ECB President Christine Lagarde at 1200 GMT.

Rising yields put pressure on high-growth tech stocks early in trading in Europe, while new signs of a slowdown in China’s economy also weighed on investor sentiment, pushing the pan-European STOXX 600 Index. to a drop of more than 1%. [.EU]

Britain’s FTSE 100 index fell 0.6%, while Germany’s DAX fell more than 1%. France’s CAC 40 fell 1.6% and Italy’s FTSE MIB index fell 1.2%.

E-mini futures for the S&P 500 fell 0.9%, indicating a lower open on Wall Street ahead.

“The global equity market is having a difficult time rising on a wall of concerns as the energy crisis and the price shift in the US (and the EU during the month) are potentially changing the timing and speed of future rate hikes or at least declining, “said Sebastien Galy, senior macro strategist at Nordea Asset Management.

Rising yields also boosted the dollar, with the index measuring its strength climbing to a five-week high. The Japanese yen fell against the dollar and the euro as rising yields made the currencies more attractive to Japanese buyers. [FRX/]

In early Asia, stocks mixed as the fallout from Chinese property developer Evergrande’s debt crisis and a growing power shortage in China weighed on sentiment.

Australia’s benchmark S & P / ASX200 index closed 1.47% lower, led by a sell-off in health and tech stocks, while Japan’s Nikkei was down 0.2% after halving your initial losses.

China’s CSI300 blue chip index rose 0.1%, while Hong Kong’s Hang Seng Index gained 1.34%, snapping a recent streak of negative sessions.

During the Asian trade, Brent crude oil hit $ 80 a barrel for the first time in three years, driven by regional economies that began to reopen following the COVID-19 pandemic and supply concerns. [O/R]

SOME ‘POSITIVE NEWS’ IN THE REAL ESTATE SECTOR

The major property indices in Hong Kong and mainland China rose between 3% and 8% after the People’s Bank of China (OBOC) pledged to support homeowners.

“There has been positive news for real estate, and the markets are taking it in after all the negative news flow in recent days,” said Tammy Leung, Everbright Sun Hung Kai strateigst.

Investors remain nervous about the future of Evergrande, which missed the deadline for making interest payments to foreign bondholders.

Evergrande has 30 days to make the payment before it falls into default, and authorities in Shenzen are now investigating the company’s wealth management unit.

Gold prices fell to a 1.5-month low on Tuesday, and spot gold hit its lowest level since Aug. 11 at $ 1,735.40 an ounce. [GOL/]

Nickel and tin prices in London extended losses to a second session on Tuesday as power outages in China, the main consumer of metals, cause concerns about falling demand. [MET/L]

Analysts said the blackouts could affect China’s listed industrial stocks.

“What we see in China with developers and blackouts is going to weigh down on Asian markets,” Tai Hui, chief Asian market strategist at JPMorgan Asset Management, told Reuters.

“Most people are trying to calculate the possible contagion effect with Evergrande and how far it could go. We continue to monitor the policy response and have started to see a shift towards homebuyer support, which is what we have been waiting for. “

Economists at the Commonwealth Bank estimate that two months of power rationing in key Chinese provinces could reduce 0.1 percentage point of economic growth this year and 0.3 percentage point next year.

“Markets have been nervous amid the focus on China’s regulatory crackdown and the prospect of the Federal Reserve reducing its asset purchases,” the BlackRock Investment Institute said in its weekly global commentary.

“We believe the path to further profit on risk assets has narrowed after a prolonged run to the upside, warranting a selective approach, but we reaffirm our tactical stance in favor of risk.”

He said he was shifting his mind to a “modest” overweight in Chinese assets, in the context of very small client assignments to the asset class.

(This story corrects the day in the first paragraph)

Report by Ritvik Carvalho; additional reporting by Sujata Rao in London and Scott Murdoch in Hong Kong, edited by Timothy Heritage and Giles Elgood

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