Global Markets: Red October rumbles on as U.S. bond yields touch 5%
20/10/2023 13:50
*
Shares sink again as fears of wider Middle East conflict
rise
Gold scales fresh 3-mth peak, oil bounds toward 2nd weekly gain
*
10-yr U.S. yields retreat to 4.98%
*
They had earlier hit 5% for first time since 2007
By Marc Jones
LONDON, Oct 20 (Reuters) - Red October rumbled on in
world markets on Friday as the sight of U.S. government bond
yields hitting 5% for the first time since 2007 amid an
increasingly threatening conflict in the Middle East left
investors searching for safety.
The traditional driver of world borrowing costs - the
10-year U.S. Treasury yield - had retreated to 4.98% ahead of
U.S. trading but with oil bounding back above $93 a barrel and
Israel hinting at a full-scale invasion of Gaza, the mood was
fraught.
Europe's share markets .STOXX .EU dropped 1%. Asia
stocks had fallen to an 11-month low overnight and futures
markets pointed to another slip on Wall Street, which has lost
2% over the last two days. .N
The Bank of Japan had intervened in its bond markets too as
the 10-year Japanese government bond yield touched a decade
high, while the scramble for safety pushed gold XAU= to a
3-month top and kept both the dollar .DXY and Swiss franc
CHF= well supported. GOL/ /FRX
"The fact that there was little pullback in bond yields in
the past 48 hours despite the S&P 500 slipping over 2% and the
VIX Index closing at over 21 for the first time since March is
very disconcerting in my view," RBC Capital strategist Alvin Tan
said, referring to one of main global market fear gauges.
A slump in Tesla TSLA.O shares, after Elon Musk warned of
demand worries, and China curbing graphite exports weren't
helping the mood either in Europe, where shares were facing a 3%
loss for the week .EU and borrowing costs were heading for
their steepest weekly rise since July. GVD/EUR
The European Central Bank meets next week and is expected to
keep its rates on hold after 10 consecutive increases but for
now traders were just trying to make it to the end of the week.
Federal Reserve chief Jerome Powell had said on Thursday
that he agreed "in principle" that the recent jump in bond
yields might "at the margin" lessen the need for more rate
hikes, but also stressed the strength of the U.S. economy.
Bank of America analysts pointed out that U.S. nominal GDP
has risen by a "remarkable" 40% in the past three years,
reaccelerating again in Q3 to a 7-8% annualised growth rate.
"This market believes Fed "behind-the-curve" and avengers
needed to curb DC’s non-stop enthusiasm for spending," the
analysts said, adding that the market selloff had left their
in-house "Bull & Bear" gauge of market sentiment into "extreme
bearish" territory, which they said was a "contrarian buy
signal".
Next week is likely to be a major test though with
Microsoft MSFT.O and Alphabet GOOGL.O reporting their third
quarter results on Tuesday, followed by Facebook owner Meta
META.O on Wednesday, and Amazon AMZN.O on Thursday.
Those stocks along with Apple AAPL.O , Nvidia NVDA.O and
Tesla combined have accounted for the bulk of the S&P 500's 11%
year-to-date gain, so any results disappointment could have
broad fallout.
SUBMERGING MARKETS
The Middle East troubles and rising global borrowing costs
meant emerging market stocks were at an 11-month low as was
MSCI's main Asia-Pacific index.
Tokyo's Nikkei .N225 finished 0.5% lower on the day and
down 3.2% for the week, which was only just short of being its
worst of the year so far. .T
Data out of Japan showed that core inflation in September
slowed below the 3% threshold for the first time in over a year.
China's blue chips .CSI300 and Hong Kong's Hang Seng
.HSI both dropped 0.7%. too. China on Friday held its
benchmark lending rates steady following some signs of
stabilisation in the economy this week.
In the currency markets, the yen briefly revisited 150 to
the dollar again JPY=EBS although the greenback was flat
against other major world currencies after a largely quiet week
by its standards. /FRX
Quincy Krosby, chief global strategist at LPL Financial,
said the focus was now intensifying on the scale of the U.S.
fiscal deficit because of Washington's larger defence funding
needs.
U.S. President Joe Biden asked Americans on Thursday to
spend billions more dollars to help Israel fight Hamas, amid
mounting expectations that Israeli forces will imminently mount
a ground invasion of Gaza.
A U.S. Navy warship intercepted three cruise missiles and
several drones launched by the Iran-aligned Houthi movement from
Yemen potentially toward Israel. A U.S. base in Iraq also came
under attack, Washington said.
"There are several reasons why investors would want to sell
this market, while very few to buy. That's what we've seen today
as risk sells off," said Kyle Rodda, senior financial market
analyst at capital.com.
"To put it in simplest terms, market participants don't want
to be carrying risk into the weekend when hostilities could
erupt."
Gold prices XAU= scaled a fresh 3-month peak of $1,990 per
ounce, the highest since late July, as investors sought
safe-haven assets in the turmoil. GOL/
Oil prices were headed for the second weekly gain, due to
fears of an escalating regional conflict in the Middle East,
which would disrupt supplies.
U.S. crude CLc1 jumped 1% to $90.30 per barrel and Brent
LCOc1 was at $93.50, up 1.2% on the day. O/R
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Asia stock markets https://tmsnrt.rs/2zpUAr4
Asia-Pacific valuations https://tmsnrt.rs/2Dr2BQA
Stocks sapped by rising borrowing costs https://tmsnrt.rs/407VZ03
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(Additional reporting by Stella Qiu in Sydney; Editing by Raju
Gopalakrishnan, Gareth Jones and Susan Fenton)
((marc.jones@thomsonreuters.com; +44 (0)20 7513 4042; Reuters
Messaging: marc.jones.thomsonreuters.com@reuters.net Twitter
@marcjonesrtrs))
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