LDN - Business

Shares stumble as US yields rise

[August 03, 2023] By Tom Wilson and Stella Qiu

LONDON/SYDNEY (Reuters) - Share markets stumbled on Thursday as U.S. bonds yields hit nine-month peaks, helping the dollar to shrug off a U.S. credit downgrade to hit a four-week high against its major peers.

European shares slipped 1.1% after falling on Wednesday to two-week lows as rating agency Fitch cut the U.S. government's credit rating. UK shares fell 1.3%, with the Bank of England (BoE) expected to raise interest rates later in the day.

Wall Street was set to open in negative territory, too. S&P 500 futures and Nasdaq futures were down 0.5% and 0.8% respectively, set for more pain after a wave of selling a day earlier.

Pressuring stocks were a climb in long-term U.S. Treasury yields after stronger-than-expected private employment data and the announced refunding of the U.S. government's maturing debt.

U.S. 10-year yields hit a new nine-month peak of 4.17%, while 30-year yields rose to a fresh nine-month top.

That helped the U.S. dollar stay buoyant near a one-month high of 102.75 against its major peers. The strong private payrolls data added to signs of U.S. labour market resilience, with the nonfarm payrolls report due on Friday. [FRX/]

Economists expect the BoE to hike rates by a quarter-point to a 15-year high of 5.25%, with a decision due at 1100 GMT. The risk, investors said, was that a repeat of June's surprise half-point increase could fuel bets that major central banks are not done tightening yet.

"We'll see how the (monetary policy) committee is thinking about that balance between inflation and growth - that's really what's on central banks' minds right now," said Jonathan Petersen, senior markets economist at Capital Economics.

APPLE AND AMAZON

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4%, extending losses after a drop of 2.3% a day earlier.

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Passersby are reflected on an electric stock quotation board outside a brokerage in Tokyo, Japan April 18, 2023. REUTERS/Issei Kato/file photo

Still, Chinese blue chips rose 0.9% and Hong Kong's Hang Seng index added 0.3% after a private survey showed China's services activity expanded at a faster place in July - a rare spot of good news for the sputtering economy though in contrast with a decline in official surveys.

Analysts at Morgan Stanley downgraded China shares to equal weight, given the still-negative earnings revisions and weak return on equity and profit margins.

"We believe a better reentry opportunity could be down the road, but more patience is preferred at this moment," they said in a note.

Investors were awaiting earnings results from Apple and Amazon that may give clues on whether the tech sector's sky-high valuations are justified.

Apple is expected to report the largest third-quarter drop in revenues since 2016 as sales of iPhones slow.

Amazon, a bellwether for consumer spending, is expected to report a more than 8% rise in second-quarter revenue, aided by a recovery in the advertising and e-commerce businesses.

In currency markets, sterling hovered around $1.27 ahead of the BOE's decision, just a touch above its four-week low of $1.2680. Sterling has climbed almost 6% this year, and is already set for its biggest annual jump since 2017, supported by the central bank's aggressive monetary tightening path.

Overnight, Brazil's central bank cut its benchmark interest rates for the first time in three years and by a larger-than-expected 50 basis points, marking the start of an easing cycle in emerging markets now that U.S. rates have likely peaked.

(Reporting by Tom Wilson in London and Stella Qiu in Sydney; Editing by Kim Coghill and Mark Potter)

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