Stocks fall as Treasury yields, dollar higher: Markets wrap

(Bloomberg) — Shares in Asia and European equity futures fell, while Treasury yields and the dollar rose, with investors yet to fully revise interest rate expectations.

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US equity futures also fell, led by contracts for the S&P 500 and Nasdaq 100 indexes. The fall in Euro Stoxx 50 contracts marked the fourth consecutive loss for the regional benchmark.

In Asia, property concerns continue to weigh on Chinese markets. Hong Kong’s Hang Seng index fell to levels last seen in November and mainland benchmarks were lower, reflecting a bleak mood across the region.

Volumes of Chinese property developers fell further after falling to a nine-month low on Monday amid fresh signs of turmoil for the sector. China Evergrande Group defaulted on debt and former executives were detained. That added to fears about the sector’s debt pile and concerns that global growth could stall as the economic engine of the world’s second-largest economy.

Equity benchmarks for Japan, South Korea and Australia all fell, with losses in South Korean stocks dragging the Kospi index up 1.3%.

Those declines put the MSCI All Country World Index, one of the broadest gauges of global stocks, on track to end its longest losing streak after ending Monday at its seventh session low in the past decade.

Treasury yields continued to rise after the 10-year rate added 11 basis points to set a 16-year high to trade above 4.54% on Monday. The momentum spilled over into Asia, with Australian and New Zealand yields also rising.

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JPMorgan Chase & Co. Jamie Dimon, chairman and chief executive officer, suggested that US interest rates could reach 7%, a worst-case scenario that would leave consumers and businesses uninsured.

“Rates remain high,” BlackRock investment firm analysts, including global chief investment strategist Wei Li, wrote in a note. Quantitative tightening and Treasury issuance in the US will push yields higher in the near term. “Rising long-term bond yields show markets are adjusting to risks in a new regime of higher macro and market volatility.”

Increasing yields were in favor of the Greens. The Bloomberg Dollar Index held on to its gains from Monday, closing at its highest level since December. The yen steadied after weakening to a one-year low after Bank of Japan officials doubled down on news that stimulus was still needed.

Moody’s Investors Service’s warning that a U.S. government shutdown would reflect badly on America’s credit rating did little to change market sentiment on Monday. Concerns about a shutdown could intensify later this week as October 1 approaches.

Crude prices fell on Tuesday, falling for a second session. Traders are increasingly concerned that rising oil prices risk fueling inflation, making it difficult for policymakers to cut rates anytime soon. Hedge funds are betting that oil’s exposure to tightening supplies will spur demand.

Minneapolis Federal Reserve Bank President Neil Kashkari said he expects U.S. interest rates to rise again this year given the strong economy. Those sentiments echoed comments from Boston Fed President Susan Collins last week, who said tightening was “certainly not off the table,” while Fed Governor Michael Bowman signaled that more than one increase would be needed.

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Meanwhile, Fed Bank of Chicago President Austin Goolsbee said on Monday it was still possible for the U.S. to avoid a recession. “I call it the golden path, and I think it’s possible, but there are a lot of risks and the path is long and winding,” he said in a CNBC interview.

“There are many reasons to believe that the full impact of tight monetary policy has yet to materialize,” said Henry Allen, a strategist with Deutsche Bank. “So, it will be a few months before we get the all-clear for the economy, with long-term interest rates still reaching new highs.”

Highlights of this week:

  • US New Home Sales, Conference Board Consumer Confidence, Tuesday

  • The ECB’s Philip Lane speaks on monetary policy on Tuesday

  • China Industrial Profits, Wednesday

  • US Durable Goods, Wednesday

  • Eurozone Economic Confidence, Consumer Confidence, Thursday

  • US Initial Jobless Claims, GDP, Thursday

  • Richmond Fed President Tom Parkin and Chicago Fed President Austin Goolsbee deliver speeches Thursday as Federal Reserve Chairman Jerome Powell meets with educators at a town hall.

  • Eurozone CBI, Friday

  • Japan Unemployment, Industrial Production, Retail Sales, Tokyo CPI, Friday

  • US Consumer Spending, Wholesale Inventories, University of Michigan Consumer Sentiment, Friday

  • ECB President Christine Lagarde speaks on Friday

  • New York Fed President John Williams speaks Friday

Some key movements in the markets:

Shares

  • S&P 500 futures were down 0.4% as of 7:12 a.m. London time. The S&P 500 rose 0.4%

  • Nasdaq 100 futures fell 0.6%. The Nasdaq 100 rose 0.5%

  • Japan’s Topix fell 0.6%

  • Australia’s S&P/ASX 200 fell 0.5%

  • Hong Kong’s Hang Seng fell 0.9%

  • The Shanghai composite fell 0.3%

  • Euro stocks 50 futures fell 0.3%

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Coins

  • The Bloomberg Dollar Spot Index rose 0.2%

  • The euro was little changed at $1.0585

  • The Japanese yen was little changed at 148.94 per dollar

  • The offshore yuan was little changed at 7.3095 per dollar

  • The Australian dollar fell 0.2% to $0.6412

  • The British pound fell 0.2% to $1.2187

Cryptocurrencies

  • Bitcoin rose 0.1% to $26,327.35

  • Ether rose 0.4% to $1,593.43

Bonds

  • The yield on 10-year Treasuries rose two basis points to 4.55%

  • Japan’s 10-year yield rose one basis point to 0.740%

  • Australia’s 10-year yield rose eight basis points to 4.40%

materials

  • West Texas Intermediate crude was down 0.6% at $89.15 a barrel.

  • Spot gold was down 0.1% at $1,913.29 an ounce

This story was produced with the help of Bloomberg Automation.

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