Global Stocks and Government Bonds Retreat
October 17 2016 - 11:54AM
Dow Jones News
By Riva Gold
Global stocks started the week in retreat as long-dated
government bonds plumbed their lowest levels since the U.K.
referendum.
The Dow Jones Industrial Average fell 29 points, or 0.2%, to
18109. The S&P 500 slipped 0.1%, and the Nasdaq Composite was
down less than 0.1%.
Upbeat earnings reports helped cushion the U.S. market from the
global declines. Shares of Hasbro gained 6.5%, while shares of Bank
of America gained 0.1% after both companies posted
stronger-than-expected earnings.
Energy shares fell the most in the S&P 500, declining 0.5%
as the price of oil dropped below $50 a barrel. U.S. crude fell
1.2% to $49.75 a barrel.
The Stoxx Europe 600 fell 0.7%, though bank shares were a rare
bright spot. Shares in Asia closed slightly lower.
In bond markets, the 10-year U.K. gilt yield climbed to as high
as 1.221% during early European trading hours before declining,
while the yield on the 10-year German bund climbed to as high as
0.102%, around its highest since the June 23 U.K. referendum.
The yield on the 10-year U.S. Treasury note rose to as high as
1.814%, its highest since early June, before retreating to 1.776%,
according to Tradeweb. Yields move inversely to prices.
While the recent rise in long-dated bond yields "feels like it's
U.K.-led," this looks like a much more widespread reassessment of
monetary and fiscal policy around the world, said James Athey,
investment manager at Aberdeen Asset Management.
"Officials continue to signal a shift from monetary to fiscal
stimulus," he said, which should suggest an environment where
yields are higher and the yield curve is steeper.
Outside the U.K., investors had also grown concerned in recent
weeks about the European Central Bank's plans for the future of its
bond-buying program. The bank holds a meeting on Thursday, with
many investors expecting confirmation that it doesn't plan to
swiftly end its asset purchase program.
Despite media reports, "We believe the ECB is still committed to
its ultraloose monetary policy and that its main target is to fight
off deflation," said Jean-François Clément, investment director at
Unigestion.
On Monday, Eurostat left its estimate of the eurozone's annual
rate of inflation for September unchanged at 0.4%. Rising inflation
expectations had chipped away at the value of bonds in recent
sessions.
Banks shares in Europe gained as bond yields rose, led by
Italian lenders Banco Popolare dell'Emilia Romagna and UniCredit
SpA
Investors also focused on comments Friday from Federal Reserve
Chairwoman Janet Yellen, who offered an argument for running the
U.S. economy hot for a period to boost consumer spending and
business investment.
The U.S. central bank meets Nov. 1-2, a week before the
presidential election. In an interview with The Wall Street
Journal, Boston Fed President Eric Rosengren signaled a willingness
to keep interest rates steady in November and wait until
mid-December before moving them higher.
Expectations have risen recently for the Fed to raise interest
rates later this year, helping send the WSJ Dollar Index to its
highest level since March on Friday.
The dollar was little changed on Monday, falling 0.1%. The euro
rose 0.2% against the dollar to $1.0995. The dollar was down 0.2%
against the yen at Yen103.9930 after rising against the Japanese
currency for three straight weeks.
Earlier, shares in Asia mostly trended lower, with Hong Kong
stocks among the biggest decliners on news that Chinese authorities
detained employees at casino operator Crown Resorts Ltd. for
suspected gambling crimes.
The Hang Seng Index fell 0.8%, while shares in Shanghai declined
0.7% and shares in Australia fell 0.8%.
Japan's Nikkei Stock Average gained 0.3%, as financial stocks
caught up with Friday's gains in global lenders.
The Bank of Japan took a more optimistic view about the nation's
regional economies in a quarterly report released Monday, which
could lessen investors' expectations for additional stimulus in the
near future.
--Aaron Kuriloff and Ese Erheriene contributed to this
article
Write to Riva Gold at riva.gold@wsj.com
(END) Dow Jones Newswires
October 17, 2016 12:39 ET (16:39 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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