Rising yield rates rattle stock markets
Bond yields are rising and the stock markets are getting worried.
With the US economy powering ahead and the Federal Reserve all but certain to raise interest rates in December and then next year US Treasury yields started rising at great speed this week. Although all the factors like strong economic data and the Fed’s policy signals have been in place for a while now, the absence of trade disputes whiplash and the first signs of worry that US stocks are overbought came together and triggered Thursday’s U-turn in US stocks.
Yields on US Treasuries are moving at a fast clip seeing the biggest one day move on Wednesday since Donald Trump’s election followed by more of the same action on Thursday until eventually yields on the 10-Year paper hit a seven-year high.
Suddenly the US stocks trading at all time high levels are looking potentially slightly overpriced and more of a risky asset than the relatively risk-free government papers. US tech giants like Facebook (NASDAQ:FB) and Netflix (NASDAQ:NFLX) bore the brunt of the new-found scepticism and their decline combined with sell off in other sectors caused the Dow to lose more than 240 points and the Nasdaq to fall 1.35%. Although some market watchers argue that the US indices had been pulled higher over the last months by a few good stocks the overall domestic economic data underpins the case for a strong market. Tomorrow’s non-farm payrolls and unemployment data is expected to provide more evidence of a strong economy.
Conservative Party conference ends without a bang
The Conservative Party conference is over and Theresa May lives to fight another day. Despite rumblings against the PM she delivered a party speech that manged to bridge some rifts in the party and at least on the surface smooth the ruffled Conservative feathers. Even with Boris Johnson’s jabs at the PM’s expense the currency markets were unperturbed and the pound traded stronger. However, the party remains deeply divided over Brexit, as does Labour, and that will remain the case tomorrow when the market reopens. It seems that the only person still seriously worried about a no-deal Brexit is Mark Carney. Luckily he is staying in his current place to mop up any mess.
UK car sales decline
The reality check of what Brexit may hold came in with new car sales data showing a 20% decline on 2017 and car makers warning that a no-deal Brexit would have serious implications for their industry. If that is not evidence enough of Britain’s economy struggling ahead of Brexit more will be provided tomorrow when Halifax house price data is released. In London retail firms and property developers faced the most pressure Thursday, Ocado (LON:OCDO) falling 8% followed by Burberry and British Land which clocked losses of around 6% and 5%, respectively.
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