LONDON (Reuters) – Concerns about high US bond yields hit global stocks Thursday as investors waited to see if Federal Reserve Chairman Jerome Powell allay concerns about a rapid rise in long-term loan costs.
The specter of higher US bond yields also undermined low-yield safe havens such as the yen, Swiss franc and gold.
Benchmark 10-year US Treasuries fell to 1.453%. They previously hit their all-time high since a year high of 1.614% last week on bets on a strong economic recovery, aided by government stimulus and advances in vaccination programs.
“Stocks and returns continue to both stimulate and thwart each other,” said James Athey, investment director at Aberdeen Standard Investments.
“The Fed’s speech continues to raise very little concern and certainly does not indicate any impending action to curb interest rates. Today’s Powell speech is eagerly awaited, but I fear more out of hope than rational expectation. “
The Euro STOXX 600 fell 0.5% and the London FTSE 0.6% lower.
The MSCI World Stock Index, which tracks stocks in 49 countries, lost 0.5%, the third day of losses.
The ex-Japan Asian-Pacific shares of the MSCI lost 1.8%, while Japan’s Nikkei fell 2.1% to its lowest level since February 5.
E-mini S&P futures were down 0.2%. Futures for the Nasdaq, the leader of the post-pandemic rally, fell 0.1%, hitting a two-month low earlier.
Tech stocks are vulnerable as their high valuation has been supported by expectations of a prolonged period of low interest rates.
But the market is targeting Powell, who will speak at a Wall Street Journal conference at 12:05 p.m. EST (1705 GMT), in what will be his final outing before the Fed’s policy-making committee meets March 16-17.
Many Fed officials have downplayed the rise in government bond yields in recent days, though Fed Governor Lael Brainard on Tuesday acknowledged concerns about the possibility that a rapid rise in interest rates could dampen economic activity.
In addition, concerns are growing about an imminent regulatory change to a rule called the supplemental leverage ratio, or SLR, which could make it more expensive for banks to hold bonds.
“The market is likely to be unstable until this regulatory issue is resolved,” said Masahiko Loo, portfolio manager at AllianceBernstein. “There are no people who want to catch a falling knife when the market volatility is so high.”
The market will also have to grapple with a massive surge in debt sales following rounds of stimulus to cope with a pandemic recession.
The issue is not limited to the United States, where 10-year UK Gilts yield was 0.796% on Wednesday, near the 11-month high of 0.836% last week, after the government revealed much higher borrowings.
On Thursday, the German 10-year yield fell 2 basis points to -0.31% after a 5 basis point rise on Wednesday, still moving with US Treasuries.
Currency traders continued to bring in dollars as they bet that the US economy will outperform its developed world counterparts in the coming months. [FRX/] The dollar rose to a high of about seven months at 107.33 yen.
“The US dollar / yen has been a one-way street since early 2021,” said Joseph Capurso, chief of international economics at the Commonwealth Bank of Australia. “The better outlook for the global economy is positive for both the US dollar / yen and Australian dollar / yen.”
Other safe-haven currencies weakened, with the Swiss franc falling to a five-month low against the dollar and a 20-month low against the euro.
Other major currencies had changed little, with a flat euro at $ 1.2054.
Gold fell to a nine-month low of $ 1,702.8 an ounce on Wednesday, last trading at $ 1,714.
Investors’ focus on a US economic recovery was unaffected by overnight data released showing that the US labor market struggled in February, when private wages rose less than expected.
Oil prices rose for a second consecutive session on Thursday as the possibility that OPEC + producers would decide not to increase production at a key meeting later in the day supported a decline in US fuel supplies. [O/R]
US crude oil rose 0.6% to $ 61.65 a barrel. Brent crude oil futures contributed 0.7% to $ 64.54 a barrel,
Additional reporting by Koh Gui Qing in New York; edited by Sam Holmes, Richard Pullin, Simon Cameron-Moore, Larry King