Surging Treasury Yields and Dollar Hit Asian Markets

08 October, 2018, 08:56 | Author: Brooke Harris
  • U.S. markets drop as bond yields climb on jobs data

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Stocks are closing slightly higher following some solid reports on hiring and the services sector.

The S&P 500 dropped to a three-week low, with nine of the 11 main sectors retreating.

The sell-off in technology and internet companies and retailers continued. Higher rates lifted financial firms.

"The (ISM) index was significantly above the long-term average during periods of growth and consistent with the upside risks to growth", said Kevin Cummins, senior US economist at NatWest Markets.

In Canada, the TSX retreated 0.4% to trade at 16,005 as financial and energy stocks were given a beating. South African rand, Mexican peso and Australian dollar also dropped up to 1.5 per cent.

The 30-year Treasury bond reached a four-year high of 3.424 per cent, up 7 basis points from late Thursday.

"Good news for economy is bad news for equity investors right now", said Michael Geraghty, equity strategist at Cornerstone Capital Group's in NY.

"The bond market has sold off all week and interest rates have been pushing higher, because traders are anxious the Fed is going to have to be more aggressive in its rate hikes", said FTN Financial's Chris Low.

Adding to the rising risk sentiment were growing signs of strain in U.S. Along with the hacking report, Vice President Mike Pence laid out allegations of Chinese election interference in a harshly worded speech, and Alibaba co-founder Jack Ma warned the tariff dispute will destroy commerce. The ECB this month cut monthly asset purchases in half, while the Fed balance sheet unwind continues. The benchmark German government bond also rose to its highest since May 2018.

Underlying these daily gyrations are concerns about what increasing bond yields mean for the market as a whole.

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"That sense of the market's rising discomfort about inflation risks leads me to expect the wage inflation reading within the USA nonfarm payrolls on Friday will be critical to the current sell-off", wrote Brian Daingerfield, macro strategist at NatWest Markets.

The Reserve Bank of India's policy decision is due Friday. The dollar index fell 0.04 percent The euro was down 0.03 percent to $1.151.

Super Micro Computer sank nearly 50 percent after the Bloomberg's report that China implanted tiny chips on motherboards supplied by the company.

The pan-European FTSEurofirst 300 index .FTEU3 lost 1.02 percent and MSCI's gauge of stocks across the globe .MIWD00000PUS shed 1.00 percent.

Among stocks, financials rose 0.42 percent as longer-dated U.S. Treasury yields rose after the jobs data. More specifically, the banks .SPXBK gained 0.78 percent as they typically benefit from rising rates.

This would likely continue to support a higher dollar in the near term and won't be a surprise to see the dollar's index breaking above August highs of 97.

The yield on the 10-year Treasury note has soared over the last three days and hasn't been this high since mid-2011.

The S&P 500 fell 0.8 percent Thursday. Copper fell 0.5 percent to $2.76 a pound.

West Texas Intermediate (WTI) crude futures rose 44 cents to $74.77 a barrel by 10:46 a.m. EDT (1446 GMT).

Gold futures were flat at $1,203.2 an ounce.

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