Global equities slumped on Monday, April 23, as U.S. bond yields approached the 3 percent level that has triggered market spasms in the past and investors awaited earnings results from some of the world’s biggest firms.
MSCI’s world index .MIWD00000PUS fell 0.25 percent after Asia .MIAPJ0000PUS shed 0.5 percent, while European bourses also slipped , after results from Switzerland’s biggest bank, UBS, disappointed.
UBS shares fell 4 percent at one point.
Wall Street looked set to open flat to weaker, S&P500 futures indicated ESc1.
Equity markets which have risen for the past two weeks, have come under pressure as oil’s latest moves higher have fueled inflation worries and pushed up government bond yields — the yield on 10-year U.S. Treasuries US10YT=RR hit its highest level since January 2014 at 2.99 percent.
That drove the gap – or spread – with German bonds to the widest in 29 years while lifting the dollar .DXY almost half a percent.
“Brent crude is now close to $75 (a barrel) and that has had a knock on effect on government bonds,” said DZ Bank analyst Rene Albrecht.
“With pressure from oil, and also aluminum and steel prices, the inflation topic has made a kind of comeback after being derailed by the trade dispute headlines.”
Aluminum prices leapt again, though, to add to this month’s 25 percent surge following U.S. sanctions on Russia’s producer-giant Rusal.
On the economic front, a global round of economic surveys should show if economic softness in the first quarter was a passing phase linked to wintry weather and Lunar New Year holidays in Asia.
Readings from Japan, France and Germany were all relatively reassuring
“It’s a good reading, it’s still encouraging,” said Chris Williamson, chief business economist at IHS Markit, of the combined euro zone numbers, which he said pointed to quarterly GDP growth of 0.6 percent.
On the geopolitical front too, there was plenty to digest.
North Korea said on Saturday it would suspend nuclear and missile tests and scrap its nuclear test site.
Talk of a trip by the U.S. Treasury Secretary Steven Mnuchin to China also fueled hopes that trade tensions between the world’s two biggest economies may be thawing.
But the rise in bond yields overshadowed these positives.
All eyes are now on U.S. earnings, with more than 180 companies in the S&P500 reporting results this week. These include tech giants Amazon, Alphabet, Facebook, Microsoft, as well as Boeing and Chevron.
S&P 500 companies are expected to report their strongest first-quarter profit gains in seven years. Of the 87 companies that have reported so far, 79.3 percent have topped profit expectations, according to Thomson Reuters.
Fears are the rise in bond yields could further derail world stocks which stand some 7 percent off end-January peaks.
When U.S. 10-year yields neared the 3 percent mark in 2013, it rocked risk appetite and sent stocks sliding. It also came shortly before oil’s 75 percent price tumble.
“Another $5/barrel increase in oil will be enough for U.S. 10-year yields to threaten 3 percent. Oil is now at the cusp of levels where higher prices will spark greater currency and broader asset market volatility,” said Deutsche Bank’s macro strategist, Alan Ruskin.