As Treasuries continued to tumble, stocks entered a deeper plunge, further eroding this year’s powerful advance. Investors prepared expecting the Bank of England to raise interest rates once more later on Thursday.
Following strong labour market data and an increase in US government debt issuance, Treasuries continued to decline, driving 10-year rates to roughly 4.15%, the highest level this year.
As they headed for their largest three-day decline since March, European markets lost 1%. Following the S&P 500’s weakest session in three months, US contracts showed additional decline. The VIX index—often referred to as Wall Street’s “fear gauge”—rose to its highest level since May on Wednesday as the US benchmark fell 1.4% and the Nasdaq 100 fell 2.2%. Additionally, Asian stocks fell for a third day.
“Given the recent rally in US stocks, especially in the Nasdaq, there’s a lot of sensitivity to rising yields, and the re-assessment of the value of equities to that of bonds,” said Gerry Fowler, head of European equity strategy and global derivative strategy at UBS Group AG. “In Europe, a lackluster earnings season is also weighing on the outlook. So many are taking the opportunity to implement a more bearish positioning.”
After the German chipmaker’s underwhelming projections, Infineon Technologies AG’s most recent earnings report saw a 12% decline. A decline in Deutsche Lufthansa AG was caused by worries about debt and rising expenses.
The BOE is expected to raise interest rates by 25 basis points, but traders haven’t completely discounted a 50-point increase as officials attempt to control UK inflation, which is now running at four times the official target. There are also rumours that the BOE, in an effort to lessen its disproportionate presence in the market, will shock economists by indicating a faster pace of bond sales.
In a client note, analysts from Rand Merchant Bank in Johannesburg said that “the UK’s consumer price moderation has lagged behind the rest of Europe, which may prompt the BOE to signal that it will maintain a hawkish stance in the remaining months of the year.”
Following the Bank of Japan’s announcement of a second intervention since the more flexible yield curve management regime was established last week, the dollar strengthened as the yen rose.
Private payrolls data that showed US corporations recruited 324,000 workers last month, surpassing the consensus projection of 190,000, contributed to the selling of Treasuries.
