World stocks wobble as stimulus hopes fade
LONDON: World stocks mostly fell yesterday as a broad rise in government bond yields suggested investors are expecting less central bank stimulus and higher interest rates than before. France’s CAC 40 slipped 0.2 percent to 4,460 and Germany’s DAX was down 0.3 percent to 10,545. Britain’s FTSE 100 fell 0.6 percent to 6,970. US shares were set to drift lower with Dow and S&P 500 futures both down 0.1 percent. A drop in bond prices, which pushes up bond yields, indicated that investors are predicting tighter monetary policies from central banks. That includes the possibility of an interest rate increase in the US in coming months as well as potentially less stimulus in the eurozone and UK bond yields were rising in many advanced economies, particularly the US, UK and Germany, albeit from nearrecord lows. Central bank stimulus is credited with propping up company share prices in recent years, so the possibility of tighter money tends to weigh on stocks. “This move in bond markets could well have further to run, particularly since we have inflation data out this week from Europe, the UK and the US, as well as the latest European Central Bank rate meeting,” said Michael Hewson, chief market analyst at CMC Markets.
There will also be a lot of interest this week on a slew of quarterly earnings reports in the US. Bank earnings will be a feature of the week. Yesterday, Bank of America said its third-quarter profits rose nearly 6 percent from a year earlier, helped by strong results in investment banking and trading. The $4.45 billion figure better than analysts had expected, leading investors to bid up the bank’s shares by 2 percent in pre-market trading. The report followed better-than-expected earnings from Citigroup and JPMorgan Chase, and helped steady investor nerves about a sector that is ailing in Europe and seen a scandal engulf Wells Fargo. Most Asian markets swung lower yesterday following healthy gains at the end of last week, as investors bet that the Federal Reserve will raise interest rates before the end of the year. Shares had soared Friday after data showed the first rise in Chinese factory prices for more than four years, fuelling hopes the world’s number two economy is reaching the end of a years-long growth slowdown.
Analysts said comments from Fed boss Janet Yellen Friday suggested the US central bank would raise borrowing costs but at a steady pace. Yellen said running a “high-pressure economy” could help it overcome the damage caused by the global financial crisis. “If nothing else, this is another lower-for-longer prescription.
However, these comments do not preclude a 25-basis-point rate hike this year as another step in the normalization process,” Thomas Simons, senior economist at Jefferies LLC in New York, wrote in a note to clients. Most experts predict a rise by December at the latest and are closely watching the release this week of US industrial output and inflation data. The prospect of higher borrowing costs weighed on Asian markets in the morning but some staged a recovery as the day wore on. Tokyo ended 0.3 percent higher, with a pick-up in the dollar against the yen helping exporters, while Seoul was 0.2 percent up. But Shanghai closed 0.7 percent lower and Sydney shed 0.8 percent, while Singapore sank 0.2 percent and Wellington tumbled 0.9 percent.
Hong Kong was down 0.8 percent, with casino shares taking a hammering on news that 18 sales and marketing staff of Australia’s Crown Resorts-including an executive in charge of luring high-rollers to Australia-had been held in China. While it is not clear why they are being questioned, the Australian Broadcasting Corporation said it understood they were seized over soliciting Chinese big spenders to gamble in overseas casinos. “The casino industry is in a sensitive position as recent Chinese government policy has been anti-corruption,” Ronald Wan, chief executive of Partners Capital International in Hong Kong, told Bloomberg News. Sands China sank 3.3 percent, Wynn Macau lost 2.7 percent and Galaxy Entertainment dived 4.3 percent.
Japan’s benchmark Nikkei 225 wobbled but finished 0.3 percent higher at 16,900.12. South Korea’s Kospi rose 0.2 percent to 2,027.61, while Australia’s S&P/ASX 200 dipped 0.8 percent to 5,388.70. Hong Kong’s Hang Seng fell 0.8 percent to 23,037.54 and the Shanghai Composite index fell 0.7 percent to 3,041.17.
The SET of Thailand dropped 0.2 percent to 1,474.39 and other markets in Southeast Asia were mostly lower. In Sydney, Crown Resorts-owned by billionaire James Packer-plunged almost 14 percent. Bangkok’s market dipped 0.2 percent, having soared Friday as news of the death of Thailand’s king fuelled bargain-buying after heavy selling in his final days. The dollar strengthened Friday on the prospects of higher rates and maintained its gains in Asia. The greenback bought 104.10 yen in Tokyo, from 104.16 yen in New York but still well up from the 103.66 yen Thursday. The euro bought $1.0985 from $1.0974 Friday but weaker than Thursday’s $1.1056. The pound remains bolted at three-decade lows as traders fret over Britain’s plans to leave the European Union.