- European stocks rebound 1%, US futures rise after rout
- The dollar rules the foreign exchange markets
- Nikkei loses 2.1% as ruling Japan party chooses new leader
- U.S. rates drop slightly, but barely recent highs
- Oil is falling, gold is winning
LONDON, Sept. 29 (Reuters) – Investors on Wednesday sought to stop the bleeding after global equities suffered their worst rout since January, while US and European borrowing costs hit their highest level in months .
Asia managed to slow the falls and the pan-European STOXX 600 index (.STOXX) rebounded 1% early in the session after losing 2.2% on Tuesday and after the three major Wall Street indices suffered their steepest drop since mid-July.
Global benchmarks for borrowing costs – yields on US and German government bonds – edged down, as traders wait to hear from the executives of the European Central Bank, the US Federal Reserve, the Bank from Japan and the Bank of England later.
“The question that will arise in the next 10 days is whether the yield of the US Treasury will continue to exceed 1.5%,” said Kenneth Broux, strategist at Société Générale. “It was kind of a tipping point for larger risk assets when the stops kicked in and the sell started to pick up.”
Broux said the question for October and the rest of the year would be whether inflationary pressures have started to ease. “The 1.5% level (on US Treasuries) is really crucial,” he said.
In currency markets, rising yields, sparked by signs the Fed wants to start cutting stimulus by year-end, saw the dollar hit an 18-month high against the yen and set its highest level of the year against other big peers too.
Doubts are re-emerging about the global recovery as the Fed prepares to cut stimulus and the US administration is stuck in debt ceiling negotiations that could lead to a government shutdown. China is also grappling with an energy crisis that has affected its economic output.
The largest MSCI Asia-Pacific stock index outside of Japan (.MIAPJ0000PUS) fell 0.84% and was heading for a 9.4% decline for the third quarter, its worst quarterly performance in three first months of 2020, when global markets were disrupted by the first spread of COVID-19.
Global stocks are heading for their first red quarter since the COVID panic peak, as the dollar is on track for its best year since 2015 and gas and energy prices have risen.
Coffee is up 25% for the second consecutive quarter. The Baltic Dry index of world freight prices jumped 40% to a 50% and 65% increase in the previous two quarters, while China’s woes saw iron ore drop 45%, what will be its worst quarter on record.
“We still view inflation as a risk, but our baseline scenario is that it will be transient and return to more normal levels over the next year,” said Osman Sattar, director of S&P Global for institutions financial EMEA.
But companies are facing pressure on margins as rising energy prices get stuck in next year’s bills.
ROTATION TOWARDS VALUE
US futures have suggested that a more risk-friendly mood may return to Wall Street. S&P 500 e-minis rose 0.6% and Nasdaq e-minis rose 0.8% after the index was beaten 3.6% on Tuesday by strong sales of tech stocks.
China’s worsening electricity crisis pushed investors out of Chinese stocks vulnerable to plant closures, including chemicals and steel, even as the country’s economic planning agency sought to reassure residents and businesses. Read more
Shares of real estate giant China Evergrande (3333.HK) jumped 15% after announcing plans to sell a 9.99 billion yuan ($ 1.5 billion) stake in Shengjing Bank (2066.HK).
Investors are waiting to see if the developer makes an overdue interest payment on a dollar bond, and S&P has said another large real estate company, Fantasia, is also at risk of default. Read more
US 10-year benchmarks gained 25 basis points in five sessions but edged down in Europe to 1.5097%, after breaking above 1.54% – the highest since mid-June – the day before.
“We think the 10-year Treasury yields should be around 1.5% to 1.75%, so they obviously still have room,” said Daniel Lam, senior cross-asset strategist at Standard Chartered. .
Lam said the rise in yields was due to the United States appearing ready to start cutting back on massive asset purchases by the end of this year.
Oil prices fell after hitting an almost three-year high the day before. Brent crude fell 1.8% to $ 77.67 per barrel US crude fell 1.75% to $ 73.97 per barrel.
Gold edged up with the spot price at $ 1,739.5 an ounce, up 0.4% from the seven-week low reached the previous day as higher yields hurt demand for the non-interest bearing asset.
Additional reporting by Alun John in Hong Kong and Sujata Rao; Editing by Edmund Blair
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