Gold Price Analysis – REFILE-GLOBAL MARKETS-Stocks down for third day, yields jump as markets prep for rate hikes
(Fixes day in first paragraph)
* Euro zone inflation expectations hit highest since 2015
* U.S. 10-year Treasury hits highest since Jun. 17
* MSCI All Country World dips for third day
LONDON, Sept 28 (Reuters) – Global shares fell for a third successive day on Tuesday, while bond yields and measures of inflation expectations on both sides of the Atlantic soared on anxiety over when central banks might raise interest rates.
MSCI’s All Country World Index, which tracks shares across 49 countries, was down 0.36% on the day after the start of trading in Europe.
The 10-year U.S. Treasury yield hit 1.5444%, its highest level since Jun. 17, pulling up euro zone bond yields in its wake. Two-year Treasury yields surged to 18-month highs.
A market measure of euro zone inflation expectations jumped to 1.8308%, its highest level since 2015. The yield on the 10-year U.S. Treasury Inflation-Protected Securities (TIPS) rose to -0.82%, its highest since late June. “The selloff on bond markets is related to markets reading recent statements from the Fed and the Bank of England as being more hawkish with a view to the timing of rate hikes,” said Sarah Hewin, senior economist at Standard Chartered Bank.
“Powell comments yesterday seem to indicate more nervousness on inflation and those have had an impact on Treasury yields. That uncertainty on how transitory are the so-called transitory factors on top of the energy price rises seem to be accentuating neveres about inflation becoming embedded.”
U.S. Federal Reserve policymakers last week projected policymakers are ready to raise rates in 2022 and that the bank is likely to begin reducing its monthly bond purchases as soon as November.
U.S. Fed chairman Jerome Powell and Treasury Secretary Janet Yellen will testify at a congress hearing in the United States at 1400 GMT. Close attention will also be on European Central Bank policymakers speaking at the ECB’s central bank forum, starting with ECB President Christine Lagarde at 1200 GMT.
Surging yields pressured high-growth technology shares at the start of trading in Europe while fresh signs of a slowdown in China’s economy also weighed on investor sentiment, pushing the pan-European STOXX 600 index down over 1%.
Britain’s FTSE 100 index fell 0.6%, while Germany’s DAX fell over 1%. France’s CAC 40 fell 1.6% and Italy’s FTSE MIB index slipped 1.2%.
E-mini futures for the S&P 500 fell 0.9%, indicating a lower open on Wall Street later.
“The global equity market is having difficulties rising in a wall of worries as the energy crunch and re-pricing of the U.S. (and EU over the month) is potentially changing the timing and speed of future rate increases or at least tapering,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.
Rising yields also boosted the dollar, with the index that measures its strength rising to a five-week high. The Japanese yen fell against the dollar and the euro as rising yields made the currencies more attractive to Japanese buyers.
Earlier in Asia, shares were mixed as the fallout of Chinese property developer Evergrande’s debt crisis and a widening power shortage in China weighed on sentiment.
Australia’s benchmark S&P/ASX200 index closed 1.47% lower, led by a sell-off in healthcare and technology stocks, while Japan’s Nikkei was down 0.2% after halving its initial losses.
China’s blue chip index CSI300 edged up 0.1%, as Hong Kong’s Hang Seng Index gained 1.34%, snapping a recent run of negative sessions.
During Asian trade, Brent crude oil hit $80 a barrel for the first time in three years, driven by regional economies beginning to reopen from the COVID-19 pandemic and supply concerns.
SOME ‘POSITIVE NEWS’ IN PROPERTY SECTOR
Hong Kong and mainland China’s major property indices rose by 3% to 8% after the People’s Bank of China (OBOC) pledged to support homeowners.
“There has been positive news for the property sector, and markets are digesting that after all of the negative news flow of the past few days,” Tammy Leung, Everbright Sun Hung Kai strateigst said.
Investors remain on edge over the future of Evergrande, which failed to meet a deadline to make an interest payment to offshore bond holders.
Evergrande has 30 days to make the payment before it falls into default and Shenzen authorities are now investigating the company’s wealth management unit.
Gold prices fell to a 1-1/2-month low on Tuesday, with spot gold hitting its lowest level since Aug. 11 at $1,735.40 per ounce.
London nickel and tin prices extended losses into a second session on Tuesday, as widening power cuts in top metals consumer China cause worries over downstream demand.
Analysts said the blackouts could affect China’s listed industrial stocks.
“What we see in China with the developers and the blackouts is going to be a negative weight on the Asian markets,” Tai Hui, JPMorgan Asset Management’s Asian chief market strategist told Reuters.
“Most people are trying to work out the potential contagion effect with Evergrande and how far and wide it could go. We keep monitoring the policy response and we have started to see some shift towards supporting homebuyers which is what we have been expecting.”
Commonwealth Bank economists estimate two months of power rationing in key provinces in China could shave 0.1 percentage points off this year’s economic growth, and 0.3 percentage points off next year’s.
“Markets have been jittery amid focus on China’s regulatory clampdown and the prospect of the Federal Reserve tapering its asset purchases,” BlackRock Investment Institute said in its global weekly commentary.
“We believe the path for further gains in risk assets has narrowed after an extended run higher, warranting a selective approach, but we reaffirm our tactical pro-risk stance.”
It said it was shifting its view to a ‘modest’ overweight in Chinese assets, in the context of very small client allocations to the asset class.
Reporting by Ritvik Carvalho; additional reporting by Sujata Rao in London and Scott Murdoch in Hong Kong, editing by Timothy Heritage and Giles Elgood