Global stocks decline as Treasury yields reach 5%: Markets wrap

(Bloomberg) — Stocks saw a broad decline after the 10-year Treasury yield topped 5%, raising concerns that higher borrowing costs will erode economic growth.

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The 10-year bond yield jumped 11 basis points to 5.02%, the highest level since 2007. The European Stoxx 600 index fell 0.7%, hitting its lowest intraday level since March. S&P 500 stock futures fell 0.5%. Copper, which is considered a benchmark for the global economy, fell to its lowest levels in about 11 months.

The speed and intensity of the bond sell-off has Wall Street’s attention as earnings season begins. With US data continuing to show a strong economy and Federal Reserve spokesmen emphasizing the need to keep interest rates high until inflation subsides, many investors are turning more bearish on risk assets.

“5% is a purely psychological level,” said Peter Chatwell, head of global macro strategies trading at Mizuho International. “All higher yield moves pose the same difficulties for markets – a higher ‘risk-free’ rate will encourage investors to reduce their holdings of riskier assets such as stocks, credit and emerging market assets, and allocate more in Treasuries.”

Read More: ‘The World’s Safest Assets’ Prove Anything But Amid Runaway Treasuries

Weak earnings also weighed on sentiment on Monday. Volkswagen AG fell nearly 3% after its earnings fell short of expectations, and Royal Philips NV lost 4% after reporting a drop in purchase orders. UK company Vistry Group Plc fell after announcing hundreds of job cuts.

According to Morgan Stanley’s Michael Wilson, the prospects for a year-end rally in US stocks are fading as investors face a plethora of risks – from rising earnings estimates to tightening Federal Reserve policy.

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Most prominent companies

• Chevron agreed to buy Hess. In a deal worth $53 billion, it is the latest major merger in the US oil industry. In an all-stock deal, Chevron will pay $171 per share for Hess.

• Adevinta ASA shares fell by the most since March 2020 after people familiar with the matter said a consortium led by Permira and Blackstone Inc. It is reconsidering its bid to acquire the European online classifieds company, threatening one of the biggest potential takeovers of the year.

• Volkswagen AG shares fell after identifying weaker-than-expected third-quarter earnings and hedging losses. Europe’s largest carmaker now expects its operating return on sales for this year to reach 7%, from at least 7.5%, it said late on Friday.

Traders are closely monitoring developments in the Middle East after Hamas released two American hostages and aid began flowing across the Egyptian border with Gaza over the weekend. This reprieve may be fleeting, as Israel intensifies its air strikes on Gaza in preparation for the “next phase” of its conflict with Hamas, while also warning that Hezbollah risks dragging Lebanon into a broader regional war.

“It’s a very volatile situation,” said Stuart Cole, chief macroeconomist at brokerage Equity Capital. “Although we may see a decline in the hedging trades we saw before the weekend, that does not mean we are seeing any pro-risk sentiment emerge.”

In Argentina, investors are preparing for a sell-off after Economy Minister Sergio Massa performed better than expected in the presidential elections that took place on Sunday, dashing hopes of an outright victory for a candidate more suitable for the market. The country’s dollar bonds – already trading at less than 30 cents on the dollar – extended losses on Monday, with five of them including the 2029 bonds among the worst performers in emerging markets.

Inflation readings in Australia and Japan later this week as well as economic activity data in the US and Europe will provide further clues about the outlook for global interest rates. Federal Reserve Chairman Jerome Powell is scheduled to deliver his remarks and the European Central Bank will issue a policy decision.

Read more: Why global investors are dumping Chinese stocks: QuickTake

Main events this week:

• Taiwan unemployment rate, industrial production, Monday

• Consumer confidence in the euro zone, Monday

• European Union foreign ministers meet in Luxembourg on Monday

• Reserve Bank of Australia Governor Michelle Bullock speaks in Sydney on Tuesday

• Eurozone Purchasing Managers’ Index (PMI) for global services and the S&P Global Manufacturing Index, Tuesday

• UK S&P Global/CIPS Manufacturing PMI, Jobless Claims, Unemployment, Tuesday

• US S&P Global Manufacturing PMI, Tuesday

• The UN Security Council is expected to open a discussion on the Middle East on Tuesday

• Microsoft Alphabet’s earnings on Tuesday

• Australia’s third quarter consumer price index, Wednesday

• Germany Ifo Business Climate, Wednesday

• IBM, Meta earnings, Wednesday

• South Korea’s GDP, Thursday

• European Central Bank interest rate decision, Thursday

• European Union leaders summit in Brussels on Thursday and Friday

• US Wholesale Inventories, GDP, US Durable Goods, Initial Jobless Claims, Thursday

• Intel and Amazon earnings on Thursday

• Japan, Tokyo Consumer Price Index, Friday

• Industrial profits in China, Friday

• US Personal Spending and Income, University of Michigan Consumer Confidence, Friday

• Exxon Mobil earnings on Friday

Some key movements in the markets:

Stores

• The Stoxx Europe 600 Index was down 0.7% as of 11:58 AM London time

• S&P 500 futures fell 0.5%

• Nasdaq 100 futures fell 0.6%

• Dow Jones Industrial Average futures fell 0.5%.

• The MSCI Asia Pacific Stock Index fell 0.9%.

• The MSCI emerging markets index fell by 0.9%.

Currencies

• The Bloomberg Dollar Spot Index was little changed

• There was little change in the euro at $1.0603

• There was little change in the Japanese yen at 149.96 to the dollar

• There was little change in the yuan in external transactions at 7.3224 to the dollar

• There was little change in the pound sterling at $1.2155

Digital currencies

• Bitcoin rose 2.4% to $30,571.41

• Ethereum rose 2% to $1,673.34

Bonds

• The yield on 10-year Treasury bonds rose nine basis points to 5.00%.

• The yield on 10-year German bonds rose seven basis points to 2.96%.

• The UK 10-year bond yield rose 6 basis points to 4.71%.

Goods

• Brent crude fell 0.5 percent to $91.74 a barrel

• Gold fell in spot transactions by 0.2 percent to $1,977.74 per ounce

This story was produced with assistance from Bloomberg Automation.

–With assistance from Sujata Rao.

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