USA stocks rise and bond yields set four-year highs

US STOCKS-Wall St set for gains as tech earnings impress, yields pull back
April 26, 2018
GLOBAL MARKETS-Earnings lift stocks; euro loses ground after ECB
April 26, 2018

USA stocks rise and bond yields set four-year highs

South Korea’s KOSPI climbed 0.5 percent.

Spreadbetters expected European stocks to open higher off the back of firm USA stocks, pointing to a rise in Britain’s FTSE of 0.1 percent, an increase in Germany’s DAX of 0.4 percent and in France’s CAC of 0.4 percent.

The spike to a four-year peak above 3 percent in the 10-year U.S. Treasury yield this week – a benchmark for global borrowing costs – had weighed on stocks amid concerns rising corporate borrowing costs could dampen profits.

Japan’s benchmark Nikkei 225 gained 0.7 percent in morning trading to 22,236.53, helped by the weaker yen.

The MSCI Asia Pacific Index followed U.S. markets lower, losing 0.5% to 172.08 as of 4:48 pm in Hong Kong.

The climb in yields has dented demand for equities, with major Wall Street indexes dropping more than 1 percent on Tuesday.

Nonetheless, the broader equity market reaction to the latest jump in U.S. yields appeared to be more measured compared with February, when a similar spike in rates sent stocks tumbling. “But the Federal Reserve signalled in March that its rate hikes would be gradual”, said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo. A break of its January 2014 high of 3.041 percent could turn investors even more bearish.

Wall Street looked set to follow suit as the benchmark U.S. 10-year Treasury yield continued to push above 3pc, having broken the psychologically key level on Tuesday for the first time since the start of 2014.

Concerns about mounting government debt and inflationary pressures from rising oil prices, lifted the yield to 3.033 in the previous day, its biggest gain for the first time in four years.

THE QUOTE: “The U.S. dollar has put on a compelling show overnight as the stars align on the back of higher U.S. yields and a considerable reduction in the U.S. dollar’s geopolitical risk premium as an outwardly calmer mood surrounding trade and geopolitical risk takes hold”, Stephen Innes of OANDA said in a commentary.

The rise in borrowing rates has also supported the dollar. The dollar index crossed the 91 marker, just about breaking above the range it’s been locked into since January, and setting itself up for a potential surge higher. They also make USA dollars relatively more attractive.

The euro fetched $1.2176 after sliding to a one-and-a-half-month low of $1.2160. Of specific interest is today’s European Central Bank monetary policy decision which will be released at 11:45 a.m. GMT. The ECB is widely expected to keep policy unchanged but its comments will be followed closely for further guidance on the timing of its scaling-back of massive monetary stimulus.

“The markets are reacting to yields moving higher”, said Peter Cardillo, chief market economist at Spartan Capital Securities in NY.

The greenback declined 0.1 percent to 109.31 against the safe-haven currency yen, after hitting a 2-1/2-month high of 109.49.

US crude futures were 0.3 percent higher at $68.24 a barrel. Brent crude, used to price global oils, gained 22 cents to $74.93 per barrel in London.

Higher US yields and a stronger dollar weighed on non-yielding gold, with spot prices slipping to a five-week low of $1,318.51/oz overnight.