LONDON, Aug 18 (Reuters) – Global shares were stuck around two-month lows on Friday, capping a week when bond investors became more convinced that interest rates will remain high for longer than initially thought, sending U.S. yields to near 16-year peaks.
Wall Street was headed for a weaker start, with little in the way of economic data for markets to digest, though Thursday’s sell off in U.S. government bonds paused on Friday before the opening bell for U.S. stocks.
S&P 500 futures and Nasdaq futures were down by 0.5% to 0.8%
“The US calendar is empty today and the focus will likely be on bond market dynamics after back-end yields touched fresh multi-year highs yesterday,” ING bank analysts said.
The greenback was set for a fifth consecutive week of gains, its longest winning streak for 15 months, helped by the prospect of U.S. interest rates remaining high or rising even further, and a safe haven in the face of growing risks in China.
Crude oil was set to snap a seven-week winning streak as China’s slowing economic growth clouded the picture for demand. The sour mood in markets extended to cryptoassets, with bitcoin hitting a fresh two month low.
Jason Da Silva, director, global investment strategy at Arbuthnot Latham, said stock markets were paying the price for bond yields soaring as economic data from the United States smash expectations, despite all the rate hikes so far.
The MSCI All Country stock index (.MIWD00000PUS) was down 0.3%, hitting its lowest since early June after falling 5.85% during August, though it remains 10% up for the year.
There was little market response to news of a package of measures from China’s securities regulator to revive a sinking stock market.
Ten-year U.S. Treasury yields eased 8 basis points to 4.2251%, after surging about 30 basis points this month alone to a 10-month top of 4.3280% and near the highest levels since 2007.
Euro zone government bond yields also eased on Friday as concerns about the global economy nudged investors into safe-haven government bonds and further signs emerged that euro zone inflation has peaked.
Britain’s 10-year bond yield had risen on Thursday to its highest since 2008 at around 4.76% , but eased slightly on Friday as sterling softened.
“The bond yields are saying you are probably going to have to keep rates higher for longer, and if growth starts to really pick up again, we might need to tighten further and stock markets are not liking that,” Da Silva said.
Minutes from the Federal Reserve this week showed most members of the rate-setting committee continued to see significant upside risks to inflation, suggesting more hikes are in the pipeline.
Attention now turns to the Fed and other top central banks’ annual gathering in Jackson Hole, Wyoming, next week, with investors set to scrutinise a speech from Fed Chair Jerome Powell on Aug. 25 for latest clues on potential rate hikes.
Markets are already scaling back rate cuts bets next year.
CHINA SHADOW BANKING
Investors were keeping a close eye on the liquidity crunch that appeared to be spreading to China’s vast shadow banking sector, with Zhongzhi, a major Chinese asset manager, telling investors it needs to restructure its debt.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.9% to flirt with nine-month lows, bringing the total loss for the week to over 3%. That marked the third straight week of declines for the index.
Chinese blue-chips (.CSI300) dropped 1.2% and Hong Kong’s Hang Seng Index (.HSI) slumped another 2%, heading for the biggest weekly losses in two months.
Shares of Chinese property developers (.HSMPI) listed in Hong Kong fell 2%, after China Evergrande (3333.HK) filed for protection from creditors in a U.S. bankruptcy court.
The onshore yuan moved away from a nine-month trough after the central bank set the daily fixing much higher than expected to support the currency, with traders on edge for any more direct intervention by Beijing or state-owned banks.
Japan’s Nikkei (.N225) also lost 0.5%, heading for a weekly drop of 3.1%.
Data on Friday showed Japan’s core inflation slowed in July, a result that is likely to support market wagers that the Bank of Japan is in no hurry to phase out monetary easing.
The U.S. dollar recovered from an earlier dip and was standing tall near a two-month top at 103.42 against its major peers. It was up about 0.5% on the week.
The Japanese yen was trading at 145.39 against the dollar, having been hammered this week to a nine-month low of 146.56 per dollar as yield differentials between the U.S. and Japan widened. It is near levels that sparked an intervention by Japanese authorities late last year.
Oil prices were lower. Brent crude futures eased 0.5% to $83.67 and U.S. West Texas Intermediate crude futures were off 0.4% at $79.99.
The gold price was 0.2% higher at $1,892 per ounce.
Editing by Toby Chopra and Mark Potter
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