Stocks down for third day, yields jump as markets prep for rate hikes

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(C) Reuters. FILE PHOTO: A man stands in front of a screen displaying Nikkei share average and the world’s stock indexes outside a brokerage, amid the coronavirus disease (COVID-19) outbreak, in Tokyo, Japan December 30, 2020. REUTERS/Issei Kato//File Photo

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By Matt Scuffham and Ritvik Carvalho

NEW YORK/LONDON (Reuters) -Global shares fell for a third successive day on Tuesday, while bond yields and measures of inflation expectations on both sides of the Atlantic soared on anxiety over when central banks might raise interest rates.

U.S. Federal Reserve policymakers last week projected policymakers are ready to raise rates in 2022 and that the bank is likely to begin reducing its monthly bond purchases as soon as November.

U.S. Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen will testify at a congress hearing in the United States at 1400 GMT. Close attention will also be on European Central Bank policymakers speaking at the ECB’s central bank forum, starting with ECB President Christine Lagarde at 1200 GMT.

MSCI’s gauge of stocks across the globe shed 1.04%.

U.S. indices were lower at the open.

The Dow Jones Industrial Average fell 122.85 points, or 0.35%, to 34,746.52, the S&P 500 lost 41.58 points, or 0.94%, to 4,401.53 and the Nasdaq Composite dropped 251.19 points, or 1.68%, to 14,718.79.

The 10-year U.S. Treasury yield hit 1.5444%, its highest level since Jun. 17, pulling up euro zone bond yields in its wake. Two-year Treasury yields surged to 18-month highs. [US/] [GVD/EUR]

A market measure of euro zone inflation expectations jumped to 1.8308%, its highest level since 2015. The yield on the 10-year U.S. Treasury Inflation-Protected Securities (TIPS) rose to -0.82%, its highest since late June.

“The selloff on bond markets is related to markets reading recent statements from the Fed and the Bank of England as being more hawkish with a view to the timing of rate hikes,” said Sarah Hewin, senior economist at Standard Chartered (OTC:SCBFF) Bank.

“Powell comments yesterday seem to indicate more nervousness on inflation and those have had an impact on Treasury yields. That uncertainty on how transitory are the so-called transitory factors on top of the energy price rises seem to be accentuating nerves about inflation becoming embedded.”

Surging yields pressured high-growth technology shares at the start of trading in Europe while fresh signs of a slowdown in China’s economy also weighed on investor sentiment.

The pan-European STOXX 600 index lost 1.61%.

“The global equity market is having difficulties rising in a wall of worries as the energy crunch and re-pricing of the U.S. (and EU over the month) is potentially changing the timing and speed of future rate increases or at least tapering,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.

Rising yields also boosted the dollar, with the index that measures its strength rising to a five-week high.

The dollar index rose 0.383%, with the euro down 0.18% to $1.1673.

Earlier in Asia, shares were mixed as the fallout of Chinese property developer Evergrande’s debt crisis and a widening power shortage in China weighed on sentiment.

Japan’s Nikkei was down 0.2% after halving its initial losses. China’s blue chip index CSI300 edged up 0.1% as Hong Kong’s Hang Seng Index gained 1.34%, snapping a recent run of negative sessions.

During Asian trade, Brent crude oil hit $80 a barrel for the first time in three years, driven by regional economies beginning to reopen from the COVID-19 pandemic and supply concerns. [O/R]

SOME ‘POSITIVE NEWS’ IN PROPERTY SECTOR

Hong Kong and mainland China’s major property indices rose by 3% to 8% after the People’s Bank of China (OBOC) pledged to support homeowners.

Investors remain on edge over the future of Evergrande, which failed to meet a deadline to make an interest payment to offshore bond holders.

Evergrande has 30 days to make the payment before it falls into default and Shenzen authorities are now investigating the company’s wealth management unit.

Gold prices fell to a 1-1/2-month low. Spot gold dropped 0.9% to $1,733.50 an ounce. U.S. gold futures fell 0.95% to $1,733.40 an ounce.

Stocks down for third day, yields jump as markets prep for rate hikes

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