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Hong Kong - Selloffs in bonds and stocks around the world deepened on signs central banks are starting to question the benefits of further monetary easing. Oil pared a weekly gain, leading commodities lower.
Longer-maturity bonds bore the brunt of the losses after the European Central Bank on Thursday downplayed the need for more stimulus, sending 30-year German bund yields to the highest since June.
The MSCI All-Country World Index fell the most in two weeks, with emerging markets leading the retreat.
Oil surged almost 6% this week following a surprise plunge in US stockpiles. South Korean assets dropped following a nuclear weapons test in North Korea.
Financial markets ran into headwinds this week as ECB President Mario Draghi played down the prospect of an increase in asset purchases and DoubleLine Capital chief investment officer Jeffrey Gundlach said it’s time to prepare for higher rates.
A "hawkish tilt" by Federal Reserve Governor Lael Brainard on Monday could pose another risk event, according to Barclays.
"This is a big, big moment," Gundlach said during a webcast on Thursday. "Interest rates have bottomed. They may not rise in the near term as I’ve talked about for years. But I think it’s the beginning of something and you’re supposed to be defensive."
Bonds
Draghi’s reticence accelerated a selloff in bonds that extended from Europe to the US and Japan, with longer-dated securities, which have been outperforming in recent months, being the hardest hit. While yields are still low compared with historical averages, they are quickly rising from records reached earlier this year, recalling the bond rout of 2015, which saw German 10-year yields climb more than a percentage point in less than two months.
The yield on German 30-year bonds climbed seven basis points to 0.58% at 7:13 a.m. in New York, adding to a nine-basis-point jump the previous day. The rate on similar-maturity US securities rose four basis points to 2.35%.
Chances of the Fed raising rates at the September meeting climbed to 28%, up six percentage points from Wednesday, according to fed funds futures.
The UK and Japan, two markets which have help drive the global bond rally this year, also saw losses. The yield on 10-year gilts rose to a one-month high of 0.84% and the Japanese 10-year yield, which has been below zero since March, climbed to minus 0.02%.
Stocks
The MSCI AC World Index fell 0.4%, led by emerging markets. The Stoxx Europe 600 Index also slid 0.4%, taking its weekly drop to 0.7%.
A Bank of America Corporation report showed fund managers withdrew money from Europe’s equity funds for a 31st straight week.
Burberry Group slid 2.4% after a report that it cut prices in Hong Kong and China. Deutsche Bank rose 4.8% as Manager Magazin reported that the US Department of Justice will next week begin settlement talks regarding the long-running investigation into the German lender’s mortgage-backed securities business.
S&P 500 Index futures slipped 0.3%. Equities failed to post gains for a second day on Thursday, as Apple led a slide in technology shares.
Hong Kong’s Hang Seng Index rose to a one-year high and a gauge of Chinese shares listed in the city rallied for a seventh day on prospects for more inflows from the mainland.
Chinese insurers can buy Hong Kong shares through an exchange trading link with Shanghai, the industry regulator announced late on Thursday. Hong Kong Exchanges & Clearing jumped as much as 7.4%, its biggest intraday gain of the year.
The MSCI Emerging Markets Index fell for the first time in six days, losing 1.2%, as benchmark gauges in Taiwan, Indonesia, the Philippines and Poland lost more than 1%.
The Kospi index slid 1.3% in Seoul after North Korea conducted its fifth nuclear arms test. South Korean President Park Geun Hye called the move an act of “maniacal recklessness” and said pressure will be increased on the North to give up its nuclear weapons.
Currencies
The won fell 0.7%, paring this week’s advance to 1.6%. The Bank of Korea kept its benchmark interest rate at a record-low 1.25% on Friday and said it’s prepared to intervene to curb volatility in the currency market if herd behaviour is evident.
The euro added less than 0.1% to $1.1270, headed for a weekly gain of 1%. The ECB refrained from adding to its unprecedented stimulus at a policy review on Thursday and Draghi said an extension of its quantitative-easing program wasn’t even discussed.
About half of respondents to a Bloomberg survey conducted last week foresaw easing, with almost all the others predicting changes in October or December.
The yen erased gains as Kyodo News reported with citing its source that the Bank of Japan will consider cutting negative interest rates further for additional easing at a policy meeting to be held from September 20 to 21.
The yuan was down 0.2% in Shanghai, set for a third weekly loss. China will allow a gradual depreciation of its currency and policy makers should keep opening up the nation’s capital account despite fund outflows, said Fan Gang, head of the National Institute of Economic Research and an adviser to the nation’s central bank.
Commodities
Oil fell after the biggest US stockpile slump in 17 years was seen as a one-off caused by a tropical storm that disrupted imports and offshore production. West Texas Intermediate fell 1.2% to $47.04 a barrel, paring the weekly increase to 5.8%. Brent dropped 1.3% to $49.36.
US crude inventories fell 14.5 million barrels last week, the biggest decline since January 1999, according to Energy Information Administration data on Thursday.
Imports tumbled 21% as Tropical Storm Hermine moved into the Gulf of Mexico on August 28, disrupting shipping and output.
The energy ministers of Saudi Arabia and Algeria will meet with OPEC’s top official in Paris on Friday as major oil producers continue to lay the ground for a potential deal to bolster crude prices in Algiers later this month.
Gold fell for a third day percent, dropping 0.2% to $1 336.25 an ounce. Copper slid 0.6% and aluminium declined 0.3%, along with most other industrial metals, amid persistent concerns about the strength of demand in China, the world’s top metals buyer.
