Morning Bid Europe: Skyrocketing yields in the spotlight

Royal Unibrew A/S

22/08/2023 05:30

A look at the day ahead in European and global markets from Tom
Westbrook  
   
    Bond selling extended on Tuesday to drive 10-year Treasury
yields  US10YT=RR  to fresh 16-year highs in Asia trade and
leave already-nervous stock markets cautious.
    The move has no obvious trigger. But it isn't inflation, as
inflation expectations have hardly budged -- investors are
plainly demanding a higher return to keep on buying the stuff.
    Some analysts have drawn attention to the coincidence of
timing between the selloff and the Bank of Japan's signal that
it would allow 10-year Japanese yields as high as 1%.
    Perhaps traders are front-running a withdrawal of Japanese
capital. At the same time, the theme of the Federal Reserve's
forthcoming Jackson Hole symposium - "structural shifts in the
global economy" - has some speculating that bond markets better
shift, too, especially at the longer end.
    Either way, with inflation-insulated returns of 2% on offer
for 10 years  US10YTIP=RR  the implications for risk appetite
across the rest of the financial world are significant.
    Small beer on the data calendar on Tuesday will keep the
focus on yields and on Fed Chair Jerome Powell's Jackson Hole
speech on Friday.    
    For one, the move seems to be making Chinese policymakers
shy for fear of driving down the currency. Rate cuts on Monday
were disappointingly small, and were accompanied by state banks
hitting the offshore forwards market to prop up the yuan.
    Market jitters are palpable as stock indexes in Shanghai
 .SSEC  and Hong Kong  .HSI  struggled at holding early attempts
to snap losing streaks, and were loitering around flat or worse
by the afternoon.
    BHP Group on Tuesday reported its lowest annual profit in
three years and forecast commodity demand stabilising in China -
perhaps the best that can be hoped for in the circumstances.
    Elsewhere in Asia Thailand's fugitive former premier,
Thaksin Shinawatra returned to Bangkok from 17 years in exile -
coinciding with a bid by his political allies to form a
government with some of their biggest rivals.
    The yen  JPY=EBS  took a small boost on the risk of
intervention after Bank of Japan Governor Kazuo Ueda met with
Prime Minister Fumio Kishida.
    Ueda said he wished to refrain detailing what was discussed,
and said it did not include FX volatility, but the yen is just
below levels that drew official intervention last year.
        
 
    Key developments that could influence markets on Tuesday:
    Data: UK public sector requirements, Euro zone current
account, U.S. existing home sales
    Earnings: Royal Unibrew  RBREW.CO , Better Collective
 BETCO.ST 


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UK and US real yields close to historical highs    https://tmsnrt.rs/3qAAvf0
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 (Editing by Shri Navaratnam)