LONDON (Reuters) – Concerns over high US yields hit global equities on Thursday as investors waited to see if Federal Reserve Chairman Jerome Powell would address concerns about a rapid rise in long-term borrowing costs.
The spectrum of higher US bond yields also undermined low-yield, safe-haven assets such as the yen, the Swiss franc and gold.
The U.S. treasury for ten years fell to 1.453%. They have previously reached their highest levels since a one-year high of 1,614% set last week on bets on a strong economic recovery, aided by the government’s stimulus and progress with vaccination programs.
“Equities and returns continue to drive each other,” said James Athey, investment director at Aberdeen Standard Investments.
‘Fed speech still shows little concern and is certainly not an indication of an impending action to curb the rise in yields. The Powell speech is highly anticipated today, but I fear more out of hope than rational expectation. ”
The Euro STOXX 600 fell 0.5% and the FTSE in London 0.6% lower.
The MSCI World Equities Index, which tracks stocks in 49 countries, lost 0.5%, marking the third day of losses.
MSCI’s former Japanese Asia Pacific stocks lost 1.8%, while Japan’s Nikkei fell 2.1% to its lowest level since February 5.
E-mini S&P futures decreased 0.2%. The future for the Nasdaq, the leader of the rally after the pandemic, fell by 0.1% and earlier reached a two-month low.
Technical stocks are vulnerable because their high valuation is supported by the expectations of a long period of low interest rates.
But the market is focused on Powell, who will speak at a Wall Street Journal conference at 12:05 EST (1705 GMT), which will be his last outing before the Fed’s March 17 to 17 policy-making committee meeting.
Many Fed officials have underestimated the rise in treasury yields over the past few days, although Fed Governor Lael Brainard acknowledged on Tuesday that concerns about the possibility of a rapid rise in yields could dampen economic activity.
In addition, the anxiety about a pending regulatory change in a rule is developing, the supplementary leverage ratio, or SLR, which could make it more expensive for banks to hold bonds.
“The market is likely to be volatile until this regulatory issue is sorted out,” said Masahiko Loo, AllianceBernstein’s portfolio manager. “There are no people who want to catch a falling knife when market volatility is so high.”
The market will also have to contend with a large increase in debt sales after stimulation to deal with a recession caused by the pandemic.
The issue is not just limited to the United States; Britain’s ten-year yield hit 0.796% on Wednesday, close to its 11-month high of 0.836% last week, after the government announced much higher loans.
On Thursday, Germany’s 10-year yield was 2 basis points lower at -0.31% after rising 5 basis points on Wednesday, still moving alongside the US Treasury.
Currency investors continued to pick up dollars as they risked that the US economy outperformed its peers in the developed world in the coming months. [FRX/] The dollar rose to a seven-month high of about 107.33 yen.
“The US dollar / yen has been in one direction since the beginning of 2021,” said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia. “The brightening outlook for the world economy is positive for both the US dollar / yen and the Australian dollar / yen.”
Other safe-haven currencies have weakened, with the Swiss franc to a five-month low against the dollar and a 20-month low against the euro.
Other major currencies have changed little, with the euro at $ 1.2054.
Gold fell to a minimum of nine months from $ 1,702.8 per ounce on Wednesday and last stood at $ 1,714.
Investors’ focus on an economic downturn in the US is unwavering through data released overnight showing the US labor market struggling in February, when private payrolls rose less than expected.
The oil price rose straight for a second session on Thursday, as the possibility that OPEC + producers could decide to increase production at a major meeting later in the day supports a drop in US fuel inventories. [O/R]
U.S. crude oil rose 0.6 percent to $ 61.65 a barrel. Brent crude futures added 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