(Bloomberg) — Stocks posted a broad decline after the 10-year Treasury yield topped 5%, fueling concerns that rising borrowing costs would undermine economic growth.
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The 10-year Treasury yield rose 11 basis points to 5.02%, the highest since 2007. Europe’s Stoxx 600 index fell 0.7%, hitting its lowest intraday reading since March. S&P 500 stock futures fell 0.5%. Copper, considered a benchmark for the global economy, fell to its lowest level in nearly 11 months.
The speed and severity of the bond selloff is grabbing Wall Street’s attention, just as earnings season begins. As U.S. data continues to point to a strong economy and Federal Reserve speakers reiterate the need to keep interest rates high until inflation eases, many investors in risky assets are becoming more pessimistic.
“5% is a purely psychological level,” said Peter Chatwell, head of global macro strategy trading at Mizuho International. “Any increases in yields present the same difficulties to markets – a higher ‘risk-free’ rate will encourage investors to reduce riskier holdings such as equities, credit and emerging market assets and invest more in government bonds.”
Read more: “The safest asset in the world” proves anything but amid wild government bonds
Weaker profits also weighed on sentiment on Monday. Volkswagen AG fell nearly 3% after earnings fell short of expectations, and Royal Philips NV fell 4% after reporting a decline in new orders. Britain’s Vistry Group Plc slumped after announcing hundreds of job cuts.
According to Morgan Stanley’s Michael Wilson, the chances of a year-end rally in U.S. stocks are fading as investors face a variety of risks – from increased earnings estimates to the Federal Reserve’s tightening of monetary policy.
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Company highlights
Chevron Corp. agreed to purchase Hess Corp. worth $53 billion, the latest major consolidation in the U.S. oil industry. In an all-stock transaction, Chevron will pay $171 per share for Hess.
Adevinta ASA shares fell the most since March 2020 after people familiar with the matter said a consortium led by Permira and Blackstone Inc. was reconsidering its pursuit of the European online classifieds company, threatening one of the biggest potential takeovers of the year.
Shares of Volkswagen AG fell after reporting weaker-than-expected third-quarter earnings and hedging losses. Europe’s largest car manufacturer now expects an operating return on sales for the year to fall from at least 7.5% to just 7%, it said late on Friday.
Traders are closely watching developments in the Middle East after Hamas released two US hostages over the weekend and aid began flowing across Egypt’s Gaza border. The reprieve could prove fleeting as Israel steps up its airstrikes on Gaza to prepare for the “next phase” of its conflict with Hamas, while warning that Hezbollah risks dragging Lebanon into a larger regional war.
“It’s a very volatile situation,” said Stuart Cole, chief macroeconomist at brokerage Equiti Capital. “While we may see some hedging retracement before the weekend, this does not mean risk-friendly sentiment is emerging.”
In Argentina, investors braced for a sell-off after Economy Minister Sergio Massa performed better than forecast in Sunday’s presidential election, dashing hopes of a clear victory for a more market-friendly candidate. The country’s dollar bonds – already trading below 30 cents on the dollar – extended losses on Monday, with five of them, including the 2029 bond, among the worst performers in emerging markets.
Inflation readings in Australia and Japan later this week, as well as economic data in the US and Europe, will provide further clues about the outlook for global interest rates. Fed Chairman Jerome Powell will make a statement and the European Central Bank will make a policy decision.
Read more: Why global investors are dumping China stocks: QuickTake
Important events this week:
Taiwan unemployment rate, industrial production, Monday
Eurozone consumer confidence, Monday
The EU foreign ministers will meet in Luxembourg on Monday
Reserve Bank of Australia Governor Michele Bullock speaks in Sydney on Tuesday
S&P Global Services Eurozone PMI, S&P Global Manufacturing PMI, 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 debate on the Middle East on Tuesday
Microsoft, Alphabet results, Tuesday
Australia 3Q CPI, Wednesday
Germany IFO business climate, Wednesday
IBM, Meta Results, Wednesday
South Korea’s GDP, Thursday
European Central Bank interest rate decision, Thursday
Summit of EU heads of state and government in Brussels, Thursday-Friday
US wholesale inventories, GDP, US durable goods, initial jobless claims, Thursday
Intel, Amazon results, Thursday
Japan Tokyo CPI, Friday
China’s industrial profits, Friday
Personal spending and income in the US, consumer sentiment at the University of Michigan, Friday
Exxon Mobil results Friday
Some of the key moves in the markets:
Shares
The Stoxx Europe 600 fell 0.7% at 11:58 a.m. London time
S&P 500 futures fell 0.5%
Nasdaq 100 futures fell 0.6%
Futures on the Dow Jones Industrial Average fell 0.5%
The MSCI Asia Pacific Index fell 0.9%
The MSCI Emerging Markets Index fell 0.9%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0603
The Japanese yen was little changed at 149.96 per dollar
The offshore yuan was little changed at 7.3224 per dollar
The British pound was little changed at $1.2155
Cryptocurrencies
Bitcoin rose 2.4% to $30,571.41
Ether rose 2% to $1,673.34
Tie up
The 10-year Treasury yield rose nine basis points to 5.00%
The 10-year German government bond yield rose seven basis points to 2.96%
The UK 10-year government bond yield rose six basis points to 4.71%
raw materials
Brent crude fell 0.5% to $91.74 a barrel
Spot gold fell 0.2% to $1,977.74 an ounce
This story was produced with support from Bloomberg Automation.
– With support from Sujata Rao.
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