Stocks drift lower, US yields rise but growth outlook dims
Fed rate decision Wednesday, BOE Thursday, BOJ Friday
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Treasury yields hit almost 16-year high
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U.S. crude hits fresh 10-month highs, SocGen slumps
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China Evergrande drops 25% before regaining ground
By Herbert Lash and Nell Mackenzie
NEW YORK/LONDON, Sept 18 (Reuters) – Global equities slid and the 10-year Treasury yield hit almost a 16-year high on Monday at the start of a week with meetings of major central banks, including the Federal Reserve which is likely to reiterate interest rates will stay higher for longer.
Global crude benchmark Brent came close to $95 a barrel in a further surge in oil prices. The market shrugged the surge off last week due to the resilience of the U.S. economy and key inflation data for August showing a decelerating trend.
But rising oil prices, a possible government shutdown in less than two weeks, the United Auto Workers strike against the Detroit Three automakers and the resumption of student loan payments in October all point to slower economic growth, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
“Higher oil prices are a tax on consumption,” Chandler said. “Most of the economic downturns since the ’70s have taken place after an oil shock, mostly a doubling of the price of oil.”
The benchmark 10-year Treasury yield hit 4.399% overnight in Asia, its highest rate since early November 2007, Ohmondieu and the two-year yield rose further above 5%.
While futures show just a 1% chance that the Fed hikes interest rates at the end of its two-day meeting on Wednesday, the market expects the U.S. central bank to keep its overnight lending rates above the 5% mark until late July 2024.
“With inflation still well above the Fed’s 2% target, another rate increase is certainly more likely to occur before any rate cuts, despite the fondest wishes of the markets,” said Saira Malik, chief investment officer at Nuveen in a note.
MSCI’s gauge of stocks across the globe shed 0.27%, while the pan-European STOXX 600 index lost 1.05%, hit by lowered growth outlooks.
Shares in Societe Generale slumped more than 11% and were set for their biggest one-day decline since March. France’s third-biggest listed bank said it expected little if any growth in annual sales over the coming years in a keenly-awaited strategic plan from its new chief executive.
Stocks meandered on Wall Street. The Dow Jones Industrial Average rose 0.04%, the S&P 500 gained 0.03% and the Nasdaq Composite dropped 0.14%.
China property woes, geopolitical tensions and ongoing strikes also stoked worries about global growth.
Shares of property developer China Evergrande Group plunged 25% on Monday after police detained some staff at its wealth management unit. Fellow developer Country Garden faced another liquidity test with a deadline to pay $15 million in interest linked to an offshore bond.
The disappearance of China’s defence minister heightened uncertainty about President Xi Jinping’s stance on international engagement.
CENTRAL BANKS
Global central banks take stage, with five of those overseeing the 10 most-heavily traded currencies holding rate-setting meetings this week. A swathe of emerging market central banks including Turkey and South Africa will also meet.
On Thursday, the Bank of England is tipped to hike for the 15th time and take benchmark borrowing costs to 5.5%.
The Bank of Japan is the key risk event on Friday. Markets are looking for any signs that it could be moving away from its ultra-loose policy faster than previously thought, after recent comments by Governor Kazuo Ueda sent yields much higher.
In currency markets, the dollar slid 0.04% to 105.20 after recently trading within sight of six-month highs.
The Swedish crown sank to a record low against the euro on Monday, days before the Riksbank is expected to raise interest rates again.
The euro gained about 0.14% to $1.0673, after slumping to a 3-1/2 month low of $1.0632 last week as the European Central Bank signaled its rate hikes could be over.
Against the yen, the dollar was also a tad softer at 147.65.
U.S. crude rose 1.3% to $91.95 per barrel and Brent was at $94.73, up 0.85% on the day.
Spot gold added 0.1% to $1,925.60 an ounce.
(Reporting by Herbert Lash; Additional reporting by Nell Mackenzie and Dhara Ranasinghe in London and Stella Qiu in Sydney; Editing by Philippa Fletcher, Alexander Smith and Christina Fincher)
