Global Shares Wilt and US Yields Climb Amid Central Bank Meetings
Global shares have weakened and US yields have reached multi-year highs after a week filled with central bank meetings that indicated the US Federal Reserve’s interest rates would remain higher for a longer period. The yen traded at 148.31 to the dollar, falling sharply after the Bank of Japan decided to keep interest rates in negative territory, suggesting that it was not in a hurry to phase out its massive stimulus programme. The dollar rose by 0.2 percent and looked set for its 10th consecutive weekly gain due to a decrease in the euro following weak eurozone economic data.
Oil prices were above $90 a barrel but were on track for a small weekly decrease after increasing by over 10 percent in the previous three weeks due to concerns about global supply. Additionally, markets have been keeping an eye on the mounting risk of a US government shutdown in just 10 days.
MSCI’s index of global equities was slightly weaker and down by about 2.6 percent for the week thus far. Benchmark 10-year US Treasury yields hit a 16-year high of 4.508 percent, trading at 4.478 percent in Europe. Meanwhile, 30-year yields reached their highest point in 12 years and were trading at 4.55 percent, slightly up for the day. ING bank stated that a re-evaluation of the Fed’s policy of higher interest rates for a longer period was driving the rise in yields, creating challenges for risk assets such as equities, credit, and emerging markets, but supporting the dollar.
Eren Osman, managing director of wealth management at Arbuthnot Latham, said, “The massive week for central banks has really been all about the Fed. That is the focus of the market and that’s what’s driving the dollar right now.” He added that the Fed had revised its unemployment rate forecast for next year downwards and if US economic data kept improving, it would increase the risk of interest rate hikes, making the need for a soft landing even more crucial.
In contrast to the US economy, the eurozone economy is expected to contract in the third quarter and is unlikely to see growth in the near future, as shown by HCOB’s flash purchasing managers’ index. This has negatively affected the euro and yields. German business activity also fell for the third consecutive month in September, indicating a deep economic contraction in Europe’s largest economy. The pan-European STOXX 600 share index was down by 0.45 percent, adding to its losses for the week.
US stock futures were slightly higher after Wall Street experienced a decline on Thursday due to concerns that the Fed, which paused on rate hikes on Wednesday, would still maintain borrowing costs at current levels for a longer period than initially anticipated.
The yen weakened following the BoJ’s announcement, with traders being cautious about intervention after the BoJ highlighted the impact of foreign exchange movements on Japan’s economy. Ray Attrill, head of FX at National Australia Bank in Singapore, said, “It just puts markets further on notice that it’s not a green light to be buying dollar/yen with impunity.” Japan’s Nikkei reduced losses of up to 1 percent and was trading 0.5 percent lower.
While investors were still absorbing the numerous policy decisions made by major central banks during the week, the Fed members raised their median projection for the funds rate in 2024 by 50 basis points to 5.1 percent. Traders reduced implied futures pricing by about 15 basis points, resulting in rates at 4.7 percent at the end of next year.
Both the central banks in Sweden and Norway announced 25 basis point hikes with the possibility of further increases. However, the Bank of England, in a divided decision, left rates unchanged for the first time in nearly two years, causing the sterling to reach a six-month low. Additionally, the Swiss franc fell significantly after the Swiss National Bank surprised the market by keeping rates on hold.
Craig Ebert, senior economist at BNZ in Wellington, commented, “It’s a lot of mixed messages and stories, and often you get those around turning points.”
In emerging markets, Indian bonds and the rupee rallied after JPMorgan announced that it would include Indian debt in its widely tracked emerging markets index, potentially bringing in billions of dollars in foreign inflows.
Gold increased by 0.3 percent to $1,926 an ounce despite the pressure from the stronger dollar and bond yields.
More detail via www.theepochtimes.com here… ( Image via www.theepochtimes.com )