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Global stocks slipped on Wednesday as slowly rising bond yields weighed on risky assets ahead of key inflation data due out later this week.
Wall Street’s S&P 500 was down 0.8 per cent in early afternoon trading in New York, with 452 stocks in negative territory and real estate and financials the worst-performing sectors. The tech-dominated Nasdaq Composite fell 0.7 per cent.
European stocks were similarly downbeat. London’s FTSE 100 shed 0.7 per cent, France’s Cac 40 lost 1.5 per cent and Germany’s Dax fell 1.1 per cent. The region-wide Stoxx 600 fell 1 per cent.
The equity market moves came after government bond yields jumped on Tuesday following the release of strong consumer confidence data — which lowered expectations of interest rate cuts in the near future — and two US Treasury auctions for which there was weak investor demand.
Hawkish comments from Minneapolis Federal Reserve President Neel Kashkari fanned the sell-off as traders looked ahead to Friday’s release of the US Federal Reserve’s preferred inflation gauge. “I don’t think anybody has totally taken rate increases off the table,” Kashkari said on Tuesday.
Yields on benchmark 10-year US Treasuries rose a further 0.07 percentage points on Wednesday to a four-week high of 4.61 per cent. Yields move inversely to prices.
“Blame bond yields” for the stock market slide, said Chris Turner, a currency strategist at ING.
Soft Treasury auctions and higher than expected Australian inflation overnight had pushed longer-dated global bond yields higher, all of which eventually proved “a headwind to equities,” he said.
Analysts at Royal Bank of Canada said “yesterday’s [US Treasury] weakness, spurred by weak auction results . . . continued overnight” and “weighed on equities”.
Yields on 10-year German bonds rose 0.11 percentage points to 2.69 per cent, the highest level since November.
Data published on Wednesday showed German inflation picked up more than forecast to a four-month high owing to an acceleration of services prices. German wages rose 6.4 per cent in the first quarter, separate data showed, giving workers in Europe’s largest economy their biggest real-terms pay rise after inflation since records began in 2008.
Investors turned to energy stocks even as prices for Brent crude, the international oil benchmark, slipped 0.7 per cent to $83.62 a barrel. Among the Stoxx 600’s 20 constituent sectors, only energy rallied on the day, up 0.3 per cent.
The “global trend of risk-off” in equity and bond markets has left companies tied to in-demand commodities as the “only safe havens”, JPMorgan analysts said in a note to clients on Wednesday.
The US dollar index, a measure of the dollar’s strength against a basket of six other currencies, was up 0.37 per cent.
Sterling, meanwhile, rose to a 21-month high against the euro as traders backed away from bets on imminent Bank of England rate cuts.