LONDON – A six-day rebound in world stocks spluttered to a halt on Tuesday as bond market borrowing costs regained traction and the dollar kicked firmly off a three-year low,Reuters reports.
The rise in bond yields looked set to pressure Wall Street’s main indexes when it reopens after a holiday on Monday, though there was plenty in Europe and Asia to subdue the mood anyway.
Europe’s main bourses held steady, supported by softer domestic currencies [.EU] but weakness across Asia, where Tokyo saw a 1 percent drop [.T], meant MSCI’s 47-country world share index was 0.25 percent in the red.
The dollar [.DXY] meanwhile continued its rebound from three-year lows, having recovered 1.5 percent since Friday on the view that the U.S. currency was due a correction after a brutal sell-off in recent weeks. [/FRX]
U.S. Treasury 10-year yields – the benchmark for global borrowing costs – were also on the up again and approaching 3 percent for the first time in four years. [GVD/EUR]
“I just advise caution,” Principal Global Investors’ chief global economist Bob Baur said about stocks with Wall Street futures pointed around 0.7 percent lower. [.N]
“I‘m not sure whether this (early February sell-off) was the dip to buy, there will probably be a relapse and then another relapse, before maybe around mid-summer stocks make another run up.”
European bond yields pushed up in line with Treasuries, with traders also pondering who might succeed Mario Draghi as European Central Bank chief next year after Spain’s economy minister was nominated for the bank’s number two job.[GVD/EUR]
The choice of a southern European for ECB vice president increases the likelihood of a northerner such as ‘hawkish’ German Bundesbank governor Jens Weidmann getting Draghi’s seat, although there are already a number of Germans in top euro zone finance posts.
Back among equities, another catalyst of the recent market upheaval, the VIX volatility index – Wall Street’s “fear gauge” – was moving higher again.
It was up to 21 percent ahead of U.S. trading, although that was still less than half the more than 50 level it peaked at earlier this month.
And though currency moves helped keep Europe level more broadly, banking giant HSBC and BHP, the world’s biggest miner, both had torrid days – the worst in over a year in HSBC’s case – after disappointing results.
U.S. traders winced too as retail behemoth Walmart’s shares slumped more than 6 percent in premarket trade after it reported a lower-than-expected quarterly profit and a sharp drop in online sales growth during the busy holiday period.