22 January 2019

U.S. Stocks Decline As Treasury Yields Push Higher

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Stock gauges in the U.S. declined as Treasury yields surged higher, while equities in Europe and Asia still searched for footing after the global stock selloff.

The S&P 500 Index opened lower Thursday, weighed down by financial and industrial shares. The Stoxx Europe 600 Index declined, as most country benchmarks in the region fell. Earlier, shares in Japan closed higher after a turbulent session while China’s stocks slid for a third day, even as Hong Kong equities climbed.

U.S. 10-year Treasuries dropped, pushing the yield to a four-year high, as U.K. gilts sold off. The Bank of England lifted its forecasts for economic growth and suggested it may need to raise interest rates faster than previously indicated, sending the pound higher. The euro fluctuated as ECB member Jens Weidmann said the central bank will monitorthe impact of the currency on inflation. 

Traders remain on edge after the resurgent threat of inflation and higher bond yields helped trigger a burst of volatility and a pullback across the overheated global equity market. Against a backdrop of solid fundamentals -- synchronized growth and strong corporate earnings -- investors would normally step in to buy the dip, but government rates remain under pressure and this week’s Treasury auctions have underwhelmed, raising the prospect that the debt selloff could resume. Traders are also facing the prospect of Fed rate hikes, which could cool growth.

“If they raise rates more or faster, more hikes, that raises a little bit of concern because right the the economy has been all gas no brakes,” Matt Schreiber, president and chief investment strategist at WBI Investments, said by phone. “The Fed’s kind of this wild card because it could really pump the brakes pretty hard and cause the cost of borrowing to go up and really cause the economy to stall.”

In Asia, the yuan earlier fell the most since the currency’s devaluation in August 2015 after China reported a much narrower-than-expected trade surplus as imports jumped. The country has resumed its Qualified Domestic Limited Partnership plan after a two-year halt, granting licenses to about a dozen global money managers that can raise funds in China for overseas investments, Reuters reported on Thursday, citing people it didn’t identify. Increasing imports and investment overseas both contribute to a weaker currency.

West Texas intermediate crude, which slid following a report showing record crude production from U.S. fields, regained some ground. The Bloomberg Commodity Index rose for the first time in a week.

Click here for the original article from Bloomberg.
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