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European and Asian stocks fell while the benchmark US Treasury yield hit its highest level in 15 years as investor fears grew that the US would keep interest rates higher for longer to fight inflation.
The yield on the 10-year US Treasury rose 0.03 percentage points to 4.29 per cent, its highest point since 2008, as investors reacted cautiously to the minutes of the July meeting of the US Federal Reserve.
The readout of the meeting — when the US central bank lifted rates to their highest level in 22 years — cited “significant upside risks to inflation, which could require further tightening of monetary policy”. A string of economic data in recent months has indicated that the US economy has remained robust even in the face of more than a year of interest rate rises from the Fed.
Global stocks fell on the news. Europe’s region-wide Stoxx Europe 600 was down 0.4 per cent, following an overnight sell-off on Wall Street, where the S&P 500 closed down 0.8 per cent and the tech-focused Nasdaq Composite shed 1.2 per cent.
“It doesn’t matter whether you think the Fed will or will not carry through with the lean in the Fed minutes,” said Stephen Innes, managing partner at SPI Asset Management.
“The fact is that 10-year yields are soaring, and in the modern-day playbook for stock market operators, that is bad news on multiple levels.”
The prospect of interest rates staying higher for longer also pushed the yields on 10-year German Bunds, the regional benchmark in Europe, 0.07 percentage points higher to 2.71 per cent. Bond yields rise as prices fall.
Japan’s yen edged up 0.1 per cent against the dollar to trade at ¥146.56, its lowest level since November, as the difference between yields on US and Japanese government debt increased.
The decline pushed the yen below the level where the Japanese ministry of finance stepped in to support the currency last year, and served to heighten speculation that it would intervene again. On Tuesday, finance minister Shunichi Suzuki said that he was watching the market moves “with a sense of urgency”.
Traders placed the probability of the central bank holding its federal funds rate steady at its next meeting in September at 87 per cent, according to data compiled by Refinitiv.
However, there is less certainty about how long it will take for interest rates to come down from historic highs.
Futures contracts tracking Wall Street’s S&P 500 and those tracking the Nasdaq 100 rose 0.1 per cent ahead of the New York open.
Equities in China rebounded from a sharp sell-off earlier in the week, with the benchmark CSI 300 up 0.3 per cent and Hong Kong’s Hang Seng rising 0.2 per cent.
In commodities markets, oil prices pared some losses after dropping almost 2 per cent on Wednesday, with Brent crude, the international benchmark, up 0.4 per cent at $83.81 a barrel.
