Stocks drop for third day, yields soar as markets brace for rate hikes

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LONDON, Sept.28 (Reuters) – Global equities fell for a third day in a row on Wednesday, as bond yields on both sides of the Atlantic soared amid concern over when central banks might increase their interest rates.

The MSCI All Country World Index, which tracks stocks from 49 countries, was down 0.3% the day after trading in Europe began. (.MIWD00000PUS)

The 10-year US Treasury yield hit 1.5444%, its highest level since June 17, dragging eurozone bond yields in its wake. Two-year Treasury yields hit 18-month highs.

A market measure of eurozone inflation expectations jumped to 1.81%, its highest level in two weeks.

Soaring yields put pressure on high-growth tech stocks at the start of trading in Europe, while further signs of a slowing Chinese economy also weighed on investor morale, pushing the pan-European STOXX 600 index down more than 1%.

The UK FTSE 100 index (.FTSE) fell 0.5%, while the German DAX (.GDAXI) fell 0.8%. The French CAC 40 (.FCHI) lost 1.1% and the Italian FTSE MIB index (.FTSEMIB) fell 0.6%.

“The global stock market struggles to climb into a wall of worry as the energy crisis and price revisions in the US (and the EU over the month) potentially alter the timing and speed of futures rate increases or at least a decrease, “said Sébastien Galy, senior macro strategist at Nordea Asset Management.

Rising yields also boosted the dollar, with the index which measures the strength of the greenback hitting a five-week high. The Japanese yen fell against the dollar and the euro as higher yields made the currencies more attractive to Japanese buyers.

Earlier in Asia, shares were mixed across regions as the fallout from Chinese property developer Evergrande’s debt crisis and the worsening power shortage in China weighed on sentiment.

Australia’s benchmark S & P / ASX200 (.AXJO) closed 1.47% lower, led by a sell-off in health and tech stocks, while Japan’s Nikkei (.N225) was in down 0.2% after halving its initial losses.

China’s blue-chip CSI300 Index (.CSI300) edged up 0.1%, while Hong Kong’s Hang Seng Index (.HSI) gained 1.34%, ending a recent string of sessions negative.

During Asian trade, Brent crude oil hit $ 80 a barrel for the first time in three years, driven by regional economies starting to reopen due to the COVID-19 pandemic and supply issues.

SOME “POSITIVE NEWS” IN THE PROPERTY SECTOR

The main real estate indices in Hong Kong and mainland China rose 3% to 8% after the People’s Bank of China (OBOC) pledged to back homeowners.

“There has been some positive news for the real estate industry, and the markets are digesting it after all of the negative news flow of the past few days,” said Tammy Leung, Everbright Sun Hung Kai strategist.

Investors remain nervous about the future of Evergrande, which missed a deadline to pay interest to offshore bondholders.

Evergrande has 30 days to make payment before it goes into default and authorities in Shenzhen are investigating the company’s wealth management unit. Read more

Gold prices fell to a 1.5-month low on Tuesday, with spot gold hitting its lowest level since Aug. 11 at $ 1,735.40 an ounce.

London nickel and tin prices extended losses in a second session on Tuesday, as growing blackouts in major metal consumers, China, raise concerns about downstream demand.

Analysts said the outages could affect industrial stocks listed in China.

“What we’re seeing in China with developers and blackouts is going to be a negative burden on Asian markets,” Tai Hui, chief Asian markets strategist at JPMorgan Asset Management, told Reuters.

“Most people are trying to determine the potential contagion effect with Evergrande and how far it could go. We continue to monitor the policy response and we have started to see some shift towards supporting homebuyers at this point. what we expected. “

Commonwealth Bank economists estimate that two months of electricity rationing in major Chinese provinces could reduce economic growth by 0.1 percentage point this year and by 0.3 percentage point next year .

“Markets have been choppy amid the focus on China’s regulatory crackdown and the prospect of the Federal Reserve cutting back on asset purchases,” the BlackRock Investment Institute said in its weekly global commentary.

“We believe the path to further gains in risk assets has narrowed after a prolonged rise, which warrants a selective approach, but we reaffirm our tactical pro-risk stance.”

He said he was changing his mind towards a “moderate” overweighting of Chinese assets, in the context of very small client allocations to this asset class.

Reporting by Ritvik Carvalho; Additional reporting by Sujata Rao in London and Scott Murdoch in Hong Kong, edited by Timothy Heritage

Our Standards: The Thomson Reuters Trust Principles.

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