The rise in Treasury yields has hit tech stocks; oil at its highest for 3 years

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  • Oil climbs on tight supply, strong demand
  • European equities end down
  • Mixed US equity indices
  • 10-year U.S. Treasury yield reaches 1.5%
  • Bonds under pressure from hawkish central banks, inflation

NEW YORK, Sept. 27 (Reuters) – U.S. government borrowing costs rose for a sixth week on Monday, hurting tech stocks, on bets that higher interest rates were on their way, while energy stocks rose as oil prices hit three-year highs.

An easing of Sino-US tensions and the decision of the Chinese authorities to inject more money to offset the fallout from the woes of the Evergrande real estate company (3333.HK) have encouraged investors and there has been some relief that the election result in Germany ruled out a pure left coalition government.

US indices were mixed, with the industry-heavy Dow Jones (.DJI) index outperforming the Nasdaq technology stock index (.IXIC).

“Tech stocks have a higher valuation, which means you are paying for future growth, and higher interest rates are a drag on future growth,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. “When returns rise, technology stocks tend to underperform.”

The Dow Jones Industrial Average (.DJI) rose 120.08 points, or 0.35%, to 34,918.08, the S&P 500 (.SPX) lost 4.41 points, or 0.10%, to 4,451.07 and the Nasdaq Composite (.IXIC) lost 60.01 points, or 0.4%, to 14,987.69.

The European STOXX 600 index ended lower, with declines in tech stocks offsetting gains in banks and energy, while German stocks hit 10-day highs.

The blue-chip German DAX (.GDAXI) rose 0.3%, leading gains among regional indices, while the pan-European STOXX 600 (.STOXX) index fell 0.2%.

Soaring oil prices are fueling speculation that global inflation will last longer than expected, forcing central banks to act and benefiting so-called reflation investments, which profit from rising rates.

“Overall, it’s a positive story because we have a strong macroeconomic history that underpins everything,” said Fahad Kamal, CIO at Kleinwort Hambros in London.

Kamal noted that optimism was reflected in central banks signaling their intention to phase out pandemic-era stimulus measures, which in turn increased bond yields.

Oil futures rose about $ 9 a barrel in September.

US crude futures settled up 2% to $ 75.45 per barrel. Brent crude futures were at $ 79.53 per barrel, up 1.8%.

On top of the 300% surge in European gas prices this year, rising prices risk further igniting inflation expectations and hastening the end of super cheap money.

Reuters Charts

Goldman Sachs predicts that Brent will hit $ 90 a barrel by the end of the year, adding that “the current deficit in global oil supply and demand is larger than expected, the recovery in global demand following the impact of the Delta being even faster than our forecasts above consensus “.

Investors are therefore repositioning the portfolios.

On Monday, 10-year US Treasury yields continued their recent advance, reaching 1.5% for the first time since June on strong economic data and signaling that the Federal Reserve is moving towards a more hawkish policy.

The 10-year Treasury yield hit 1.516% in morning trading, its first time above 1.5% since June 29, before falling back as the higher rate pulled in buyers.

The 10-year benchmarks last fell 5/32 to a return of 1.4768%, down from 1.461% on Friday night.

Rising US yields, especially on an inflation-adjusted basis, also pushes the dollar higher. The dollar index rose 0.088%, with the euro down 0.09% to $ 1.1704.

Gold prices stabilized with gains held back by the strengthening dollar and Treasury yields.

US gold futures settled virtually unchanged at $ 1,752.

Gold Spot% at $ 1,750.64 per ounce.

Meanwhile, concerns persisted over China.

A power supply crisis that is triggering an industrial contraction and putting pressure on the economic outlook adds to concerns from real estate company Evergrande, which missed a bond coupon payment last week and faces a more in the next few days. Read more

Hong Kong-listed shares in Evergrande’s electric car unit (0708.HK) fell 26% after warning it was in urgent need of a quick cash injection.

Still, blue-chip Chinese stocks (.CSI300) gained 0.5%, thanks to another cash injection from the central bank and are hopeful that the release of Huawei executive Meng Wanzhou would re-establish ties with the West. Read more

“Energy shortages come on top of Evergrande and regulatory crackdown. These things are unrelated, but happening quickly could lead to something more serious,” Kamal said.

Additional reporting by Sujata Rao in London and Wayne Cole in Sydney; Editing by Dan Grebler and Toby Chopra

Our Standards: Thomson Reuters Trust Principles.

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