Shares fell and government bond yields around the world rose on Wednesday as oil prices hit their highest in seven years, fueling concerns about rising inflation. The euro STOXX 600 index fell 1.9%, breaking gains on its best day in 11 weeks on Tuesday, with travel and leisure and tech stocks leading the slide with losses of 2.3%-3.2%. German shares fell 2.2%. The mood was set to hit Wall Street, where US futures gauges pointed to losses of around 1.5%.
Weighing on equity markets Oil prices were at their highest level since November 2014, with investors worried that rising energy costs could force central banks to raise rates more quickly to cope with rising inflation.
US crude climbed to $79.78 a barrel, Brent crude climbed above $83 – near a three-year top hit in the previous session – before the market turned negative during trading hours in London. [O/R]
On the back of oil’s gains were concerns about energy supply and a decision by producers on Monday to increase planned output rather than increase it further. [O/R]
Inflation anger led to a selloff in long-standing US Treasury and euro zone benchmark debt and supported the dollar.
“Higher oil — and commodity prices in the case of gas and oil in general — is feeding through higher bond yields, as it has an inflationary impact,” said Mike Bell, global market strategist at JPMorgan Asset Management.
“The market is looking at this and wondering ‘Is there a scenario in which inflation that everyone said could be temporary, a little bit more stable?
The benchmark 10-year yield rose 4.5 basis points to 1.573% during the Asia session, up nearly 11 bps in three days. They were last at 1.5397%.
Returns on 20-year and 30-year treasuries also rose to their highest level since June. [US/]
Benchmark euro zone bond yields hit new highs, prompting markets to expect inflation to be more stable than expected. Germany’s 10-year yield, the bloc’s benchmark, rose to its highest level since late June.
The MSCI World Equity Index, which tracks stocks in 50 countries, fell 0.5%. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.1%.
“Growth started to peak 3-4 months ago, but between last November and April this year the markets got used to a higher-than-expected data point,” said Grace Peters, head of EMEA investment strategy at JPMorgan Private Bank.
“From April to date we are getting more data volatility and data that is more open to interpretation. So the market is concerned about the glide path from here.”
Chinese markets remained closed for a public holiday, and shares of cash-starved developer China Evergrande were suspended on Monday pending the announcement of a significant transaction.
Dollar up, Kiwi down
The dollar edged higher against a basket of major currencies, supported by rising yields, and was heading towards a one-year high hit last month.
The dollar rose 0.5% to 94.427 in early morning trade.
Rising energy prices and bond yields also affected the British pound. The rush for the safe-haven dollar pushed sterling by 0.5% to $1.355, with one-month volatility reaching its highest level in seven months.
The New Zealand dollar widened the deficit as US yields rose, barely shaken after the Reserve Bank of New Zealand raised its official cash rate for the first time in seven years.
The kiwi was last down 1.1% at $0.6896.
The euro was pinned below $1.16 and was down 0.6%, slightly higher than last week’s 14-month low.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.
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