World stocks take a big dive
Commodities also in reverse
WORLD stocks were in their biggest two-day dive in six months yesterday and commodities were also jammed in reverse, as rising US borrowing costs cooled financial markets’ euphoric start to the year.
The move above 2.7 percent by US Treasury yields – the benchmark for world lending rates – helped the dollar off the canvas, though that was part of the issue.
Oil slid back below $70 (R835), metals buckled and Asian stocks saw their biggest fall since early December after Wall Street had suffered its largest drop in five months.
Despite an easing of yields in Europe, its stocks duly followed. The pan-regional STOXX 600 dropped 0.5 percent as traders took aim at cyclical sectors like mining and financials after their strong run this month.
“The big picture view is that the rising US yields have finally come to the dollar’s rescue,” said Société Générale strategist Alvin Tan. “It didn’t respond for weeks, but as yields have broken above 2.7 percent, it finally has.”
The rise in Treasury yields leaves them at the highest since mid-2014, though the move had been paused in Europe as lower-than-forecast early German inflation numbers had nudged its borrowing costs lower.
Moreover, the bond market braced for potentially hawkish language from the Federal Reserve, which began its two-day policy meeting yesterday.
Focus was also on US President Donald Trump’s State of the Union address scheduled later in the day, with attention on his views on an infrastructure overhaul and trade.
The dollar’s rebound meant the euro fell for a second day. It eased 0.3 percent to $1.2373 having hit a three-year high of $1.2538 last week. Data was still upbeat, though with France’s economy rounding off its strongest year since 2011.
Britain’s pound also came under renewed pressure, falling back to $1.40 again, as Brexit tensions continued to hound the UK government and its leader, Theresa May.
Britain’s housing market continued to lose momentum, data showed too, with mortgage approvals at their weakest in nearly three years following the Bank of England’s (BoE’s) first interest rate hike in a decade.
Growth in consumer lending, something the BoE has said it is watching closely, picked up speed for the first time in four months.
Russian stocks edged higher as they shrugged off the risk of possible new sanctions from a newly published US list of oligarchs close to the Kremlin.
The list, drawn up as part of a sanctions package signed into law in August last year, does not mean those included will be subject to sanctions.
It does include a wide circle of wealthy Russians though, that run some of the country’s biggest companies, including the heads of Russia’s two biggest banks Sberbank and VTB, metals magnates and the boss of state gas monopoly Gazprom.
VTB Capital analysts said the list was “simply a mechanical listing” of prominent Russian politicians and business leaders. – Reuters