Stocks Retreat as Yields Climb



Rising Bond Yields & Market Jitters

Stocks are ending the week under pressure as bond yields lurch to fresh cycle highs following the Fed’s hawkishness and a raft of central bank announcements that cement the view that (in most cases) rates are going to stay higher for longer. The benchmark US 10yr Treasury note yield hit 4.5%, the highest in 16 years as investors fretted about inflation and the ability of central banks to ease in a slowing economy, whilst the 2yr rose above 5.2%, its highest since 2006. 

Stocks Tumbling Globally

This morning European stocks are generally lower, taking cue from a very poor performance on Wall Street saw the S&P 500 notch its worst day since March. The broad market slid 1.64% to 4,330, testing the Jun swing lows, whilst the Nasdaq Composite fell 1.82% and is down 5% over the last five sessions. The DAX and CAC both declined, while the FTSE 100 managed to reverse an early decline to turn marginally positive but sentiment is hardly bullish. The Stoxx 600 was off about a third of a percent after hour an hour of trade. The FTSE 100 is heading for a weekly decline of around half a percent, whilst the DAX and CAC are looking at 2-3% drops.

Yen Falling

The yen fell as the Bank of Japan was unchanged with no major changes to the statement, disappointing some who’d thought the central bank might have a few more crumbs on normalisation. Governor Ueda said the BoJ could consider ending yield curve control and modify negative interest rate policy … but only when it sees 2% inflation in sight. He kept mum on FX moves and interventions but USDJPY is above 148 this morning and must be a worry.

BoJ’s Inflation Tango

It’s intervened before now but 150 would be an area to defend and the market might like to test the resolve. And all this despite signals the BoJ should be moving more swiftly to normalise policy with core inflation at 3.1%, and core-core accelerating to 4.3% in August. That marks 17 straight months with inflation above target – yet Ueda is still saying they won’t move until it returns sustainably to target. Go figure – there will be no “quiet exit” as Ueda hopes for – it will be messy and they know it.

European Economic Strife and Crude's Bumpy Ride

French flash manufacturing PMI down to 43.6 from 46.0 before, services down to 43.9 from 46.0 before. Germany’s manufacturing PMI still below 40! But it was better than the previous month! EURUSD made a fresh 6-month in the wake of the French data this morning before rebounding on the German.

Crude oil trades firmer after rejecting the move to $88.