LDN - Business

Bond yields grind higher, Caterpillar smashes forecasts

[October 24, 2017] By Marc Jones

LONDON (Reuters) - Benchmark bond yields cranked higher on Tuesday, as data from top euro zone economies bolstered the case for a cut to ECB stimulus and results from Caterpillar pointed to robust global construction growth.

German bund yields hit a two-week high and U.S. Treasuries climbed to their highest level since May as another dump of big name company earnings landed ahead of Wall Street trading. [.N]

General Motors <GM.N> posted a loss due to charges linked to the sale of its European Opel unit, but that was more than offset as Caterpillar <CAT.N> reported at 25 percent jump in revenues on soaring demand for its construction equipment.

The latest round of global activity surveys had also shown German businesses enjoying their strongest jump in new orders in 6-1/2 years, France's rebound intact and a growing appetite for credit in the euro zone.

Minor misses to some of the headline forecasts kept some of the enthusiasm in check but they were not enough to stop German 10-year bond yields <DE10YT=TWEB> climbing past 1.35 percent before Treasuries then pushed back above 2.40 percent. [GVD/EUR]

The pan-European STOXX 600 <.STOXX> index was broadly flat meanwhile, with London's FTSE 100 <.FTSE> retreating 0.1 percent and Paris's CAC 40 <.FCHI> and Germany's DAX <.GDAXI> up 0.2-0.3 percent.

Apple <AAPL.O> supplier AMS <AMS.S> saw a spectacular 15 percent jump after it pointed to strong demand ahead of the iPhone X release. Strong profits from Spain's Caixabank <CABK.MC> also lifted the IBEX <.IBEX> after its Catalonia-related underperformance with a 2.3 percent rise. [.EU]

Wall Street was expected to climb, having dipped on Monday. Asia had also cheered a record-breaking 16th straight gain for Japan's Nikkei index overnight.

That kept MSCI's 47-country world share index <.MIWD00000PUS> near its recent all-time highs after the previous day's 6 percent drop in General Electric shares had seen the ViX volatility index <.VIX> spike up.

Major currencies mainly kept to narrow ranges. The dollar <.DXY> edged down from recent highs as the wait continued for Donald Trump to name the next head of the U.S. central bank after he said on Monday a decision was "very, very close".

Europe's biggest move came from the Czech crown <EURCZK=> which leapt on bets on another interest rate hike, while New Zealand's dollar stumbled to a five-month low as the incoming Labour coalition's policies unsettled investors. [/FRX]

[to top of second column]

Pedestrians leave and enter the London Stock Exchange in London, Britain August 15, 2017. REUTERS/Neil Hall

KIWI DIVE

Prime Minister-designate Jacinda Ardern's tough stance on foreign investment in housing and on immigration could prove negative for the currency <NZD=D4>, given the country runs a current account deficit.

In addition, Ardern said on Tuesday her government plans to review and reform the Central Bank Act to possibly include employment, alongside inflation, as a dual target.

The kiwi was down 0.5 percent to $0.6930. [NZD/] It has lost nearly 5 percent since the Labour Party secured power following an election last month.

Japan's Nikkei <.N225> had extended its 16-day winning streak to a 21-year peak overnight following the weekend election win for Prime Minister Shinzo Abe.

China's blue-chip CSI300 index <.CSI300> also jumped to the highest in more than two years as Beijing's ruling Communist Party moved to the final stages of a twice-a-decade congress. [.T]

It enshrined President Xi Jinping's political thought into its constitution, putting him in the same company as the founder of modern China, Mao Zedong, and cementing his power ahead of a second five-year term.

But a key Xi ally, top corruption fighter Wang Qishan, will not be on the new Politburo Standing Committee, the apex of power in China. He was not among those named on the 204-member Central Committee. His position had been one of the big question marks ahead of the congress.

Emerging market stocks slipped to a 2 week low as the rise in bond yields took its normal toll on riskier assets. Though in commodities, base metals were stronger, with copper futures up 1.5 percent <CMCU3>.

Spot gold <XAU=> edged 0.2 percent lower to $1,278 an ounce, remaining near a two-week low, while Brent and U.S. crude <LCOc1> <CLc1> recovered from an early dip to rise around 30 cents to $57.64 and $52.20 a barrel respectively. [O/R]

Saudi Energy Minister Khaled al-Falih said on Tuesday that there was flexibility and options were open on an OPEC-led oil supply cut agreement.

Speaking to Reuters on the sidelines of a major investment conference in the capital Riyadh, Falih said there was a determination to do whatever it takes to bring oil inventories down to the five-year average but that some work remained.

(Reporting by Marc Jones; Editing by Catherine Evans and Peter Graff)

Back to top