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(Bloomberg) -- The powerful rally in global stocks since the year began is facing a headwind as bond yields climb, the flip side of prospects for continued synchronous global growth and the potential for a pick-up in inflation pressures. Oil traded around three-year highs.

Reduced asset purchases by the world’s top central banks, rising commodity prices and looming U.S. debt sales all support the case for higher bond yields. Yields on 10-year U.S. Treasuries climbed to the highest level in more than nine months, topping 2.55 percent and spurring the bond veteran Bill Gross to declare a bear market Tuesday.

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. Asian stocks were mixed, with benchmarks in Tokyo showing both gains and losses, South Korean and Australian shares weaker and Hong Kong equities higher. Futures on the S&P 500 Index were little changed after the gauge edged up to a fresh record in a sixth straight session of gains.

"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 Ltd., 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.

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. China separately reported that producer and consumer prices increased at a faster monthly pace in December, though the year-on-year pace of factory-gate costs eased.

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

  • U.S. 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.

Terminal users can read more in our markets blog.

These are the main moves in markets:

Stocks

  • Futures on the S&P 500 were down 0.1 percent as of 8:17 a.m. Frankfurt time. The underlying gauge advanced 0.1 percent Tuesday, extending the longest rally since October.
  • Japan’s Topix index rose 0.2 percent at the close, while the Nikkei 225 Stock Average fell 0.2 percent.
  • Hong Kong’s Hang Seng Index added 0.5 percent, while Australia’s S&P/ASX 200 Index sank 0.5 percent. The MSCI Asia Pacific Index was little changed.
  • Futures on the Euro Stoxx 50 Index and the U.K.’s FTSE 100 Index pointed to a slightly weaker open.

Currencies

  • The yen jumped 0.6 percent to 111.92 per dollar after rising 0.4 percent on Tuesday.
  • The Bloomberg Dollar Spot Index was down 0.1 percent after two days of gains.
  • The euro traded at $1.1933 following a pullback Tuesday.
  • The pound was little changed at $1.3528.

Bonds

  • The yield on 10-year Treasuries rose 1 basis point, to 2.56 percent, after jumping seven basis points Tuesday. The level is the highest since March.
  • German 10-year bund yields rose about 4 basis points Tuesday, to 0.466 percent.

Commodities

  • Gold futures fell 0.1 percent to $1,311.33 an ounce.
  • West Texas Intermediate crude rose 0.8 percent to $63.45 a barrel, up about 5 percent since the year began.

--With assistance from Haidi Lun

To contact the reporter on this story: Adam Haigh in Sydney at ahaigh1@bloomberg.net.

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Ravil Shirodkar

©2018 Bloomberg L.P.

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