SINGAPORE/LONDON: US Treasury yields held near multiyear highs on Friday, with markets seeing no end to tightening from the Federal Reserve, causing shares to slip and the dollar to strengthen, particularly on the yen, against which it hit a new 32 year top, according to Reuters.
The benchmark US 10-year yield edged up as high as 4.291 percent, its highest level since June 2008, having risen nearly 10 basis points overnight.
This dragged on shares, with Europe’s STOXX index falling 1.3 percent, US S&P500 futures sliding 0.6 percent and MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.92 percent, languishing near the two-and-a-half year intraday low it touched the day before.
“It’s all so tenuous... The problem is the macro environment still remains difficult,” said Shane Oliver, chief economist at AMP Capital, adding that the market is in a tug of war between investors who see opportunities and those who are focused on the difficult backdrop.
Global markets have been extremely volatile as investors worry that hefty rate hikes will push major economies into recessions before inflation is tamed, while the resulting stronger dollar could wreak havoc in emerging markets.
Philadelphia Federal Reserve President Patrick Harker on Thursday suggested the central bank will “keep raising rates for a while,” while US economic data showed persistent labor market tightness.
Third-quarter corporate earnings have offered little help to equities. On Friday Adidas shares dropped 10 percent as the German sporting goods maker cut its full-year outlook, citing weaker demand.
European retail shares were down 3.8 percent, also hurt by Friday data showing British shoppers reined in their spending more sharply than expected in September.
Chinese blue chips slid 0.3 percent, with China watchers waiting for Sunday when members of the ruling Communist Party’s elite Politburo Standing Committee are set to be unveiled at the conclusion of its twice-a-decade congress. Xi Jinping is set to clinch a third five-year term as China’s leader.
Yen keeps weakening
Higher US yields were also being felt in currency markets, where the dollar climbed nearly 1 percent to a fresh 32-year peak on the yen of 151.59.
“This rate environment continues to (cast) doubts (on) the sustainability of any rally in equities, and chances that the dollar will receive more safe-haven flows are elevated,” said Francesco Pesole foreign exchange strategist at ING in a note to clients.
The Japanese currency, which was heading for its 13th straight session of declines, is particularly sensitive to moves in US yields as the Bank of Japan has a policy of keeping benchmark Japanese government bond yields near zero.
Fresh threats of intervention to support the yen made by Japanese policymakers have kept investors on alert, although there has been no official announcement of further action since the Ministry of Finance’s dollar-selling, yen-buying intervention last month.
Sterling was also under pressure, down 1 percent against the dollar, as Conservative lawmakers jostled to replace Liz Truss, after initially rising when she announced that she was stepping down as prime minister.
“The field seems to be narrowing to: (Rishi) Sunak, (Penny) Mordaunt, and (Boris) Johnson. Mordaunt and Johnson are the risk-off/cable-off/gilts-off candidates, while Sunak is probably the opposite,” said BMO Capital Markets analysts in a note.
Cable is the sterling/dollar currency pair, gilts are British government bonds.
European bond yields are also rising and Germany’s benchmark bond yield hit a new 11-year high of 2.512 percent.
Brent crude was last up 0.37 percent at $92.69 per barrel, while spot gold was down 0.25 percent and set for its second weekly decline.
