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Stock rally tested amid rise in yields, oil jumps

Jan 10 2018 11:36
Natasha Doff and Adam Haigh, Bloomberg

Sydney - The global stock rally took a pause on Wednesday as investors digested a surge in bond yields, the flip side to synchronous global growth and potentially rising inflation. The yen rallied, the pound retreated for a third day, and crude jumped.

The Stoxx Europe 600 Index headed for its first down-day in six, following moves lower in a handful of Asian equity gauges. Yields on 10-year US. Treasuries traded at the highest level in about 10 months after spurring bond veteran Bill Gross to declare a bear market on Tuesday.

West Texas oil extended gains from the highest close in more than three years as US industry data signalled crude stockpiles dropped for an eighth week.

Reduced asset purchases by the world’s top central banks, rising commodity prices and looming US debt sales all support the case for higher bond yields, but until now they have proved resilient.

A big move in benchmark Treasuries on Tuesday has left traders weighing where yields will go from here.

"Markets will be higher at the end of next year than they are right now, in my opinion, but it’s going to be a little volatile getting there," Jonathan Slone, chief executive officer of CLSA in Hong Kong, said on Bloomberg TV.

Greater fluctuations are in store "as this adjustment period comes in and as the bond markets settle down into what could be a new trading range," he said.

In Asia, the yen climbed for a second day as traders unwound short positions in the wake of the Bank of Japan paring back purchases of ultra-long dated bonds. China’s central bank weakened its daily fixing on the yuan by the most since September, one day after a report showed it has adjusted its currency-fixing mechanism, a move interpreted as an embrace of greater fluctuation in the exchange rate.

Here are some of the main events to watch for this week:

US inflation data are forecast to show price pressures remain muted for now, giving hawks little reason to argue for faster tightening. St. Louis Fed bank President James Bullard and head of the New York Fed Bill Dudley are among central bankers scheduled to speak.

A reading on China’s money supply is expected in coming days.

These are the main moves in markets:

Stocks

The Stoxx Europe 600 Index sank 0.3% as of 8:24am London time, the first retreat in more than a week and the largest decrease in three weeks. The MSCI All-Country World Index dipped less than 0.05%, the first retreat in more than a week.

The MSCI Emerging Market Index sank 0.4%, the largest decrease in more than four weeks.

The MSCI Asia Pacific Index declined less than 0.05%, the first retreat in more than a week. Futures on the S&P 500 Index fell 0.2%, the first retreat in more than a week.

Currencies

The Bloomberg Dollar Spot Index declined 0.2%. The euro increased 0.1% to $1.1951. The British pound fell 0.2% to $1.3515, the weakest in more than a week. The Japanese yen jumped 0.6% to 111.93 per dollar, the strongest in six weeks on the largest climb in four weeks.

Bonds

The yield on 10-year Treasuries increased less than one basis point to 2.56%, reaching the highest in 10 months on its fifth straight advance. Germany’s 10-year yield climbed eight basis points to 0.55%, the highest in more than five months on the largest surge in about six months.

Britain’s 10-year yield gained one basis point to 1.288%, the highest in almost six weeks.

Commodities

Gold increased 0.1% to $1 314.38 an ounce. West Texas Intermediate crude gained 0.8% to $63.48 a barrel, the highest in more than two years.

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equities  |  markets  |  international stocks
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