US stocks falter, rising bond yields keep investors nervous

Oil falls as US output soars, North Sea supply restarts

NEW YORK, Feb 8, (Agencies): Stocks in world markets remained on shaky ground on Thursday, with major US stock indexes falling more than 1 percent, as US bond yields crept back towards four-year highs.

Yields climbed after the Bank of England said interest rates probably need to rise sooner, adding to expectations of reduced central bank monetary stimulus globally.

Treasury bond prices have weakened in the past week-and-a-half as investors adjusted for the likelihood of a stronger US economy and higher inflation, which could lead the Federal Reserve to boost rates more times than previously anticipated.

Also underpinning yields, US congressional leaders Wednesday reached a two-year budget deal to raise government spending by almost $300 billion.

While the deal was a rare display of bipartisanship that should stave off a government shutdown, it looks set to widen the US federal deficit further and could fan inflation.

The move in yields kept equity investors nervous about higher rates and inflation.

The Dow Jones Industrial Average fell 414.75 points, or 1.67 percent, to 24,478.6, the S&P 500 lost 35.22 points, or 1.31 percent, to 2,646.44 and the Nasdaq Composite dropped 109.53 points, or 1.55 percent, to 6,942.45.

The pan-European FTSEurofirst 300 index lost 1.89 percent and MSCI’s gauge of stocks across the globe shed 1.26 percent.

Emerging market stocks lost 0.89 percent.

The recent selloff, sparked by last Friday’s jump in Treasury yields, sent the VIX index, Wall Street’s “fear gauge,” sharply higher. The index was just below 30 on Thursday, more than twice the levels seen in the past few months.

Oil prices were down after data showed US crude output had reached record highs and the North Sea’s largest crude pipeline reopened following an outage.

US crude fell 1.72 percent to $60.73 per barrel and Brent was last at $64.56, down 1.45 percent on the day.

US

US stocks markets took another beating in early Thursday trade as a rise in bond yields and higher inflation continued to unnerve investors following a historic drop on Monday.

The market’s main gauge of volatility, the CBOE Volatility Index, fell to 27.06 on Thursday, still more than twice the level it held over the past few months. The index hit its highest level since August 2015 on Tuesday.

Investors are weighing whether the sharp swings in stocks this week are the start of a deeper correction or just a temporary bump in the nine-year bull market, spurred by concerns over rising interest rates and bond yields.

At 10:52 a.m. ET (1552 GMT), the Dow Jones Industrial Average was down 319.24 points, or 1.28 percent, at 24,574.11, the S&P 500 was down 27.4 points, or 1.02 percent, at 2,654.26.

The Nasdaq Composite was down 82.50 points, or 1.17 percent, at 6,969.49.

All 11 major S&P sectors were lower, with the industrials and financial indexes leading the decliners.

Home Depot’s 1.7 percent fall and Caterpillar’s 2.3 percent decline weighed the most on the Dow, while JPMorgan was among the top weights on the S&P.

Dallas Fed President Robert Kaplan said on Thursday the central bank could hike rates three times this year and the recent market volatility in itself was not enough to change his base scenario.

However, Minneapolis Fed chief Neel Kashkari said he does not think the Fed should raise interest rates unless wages and inflation start to take off, and that the US economy is a “long way” from that.

Economic data showed weekly jobless claims fell to 221,000, below the 232,000 rise expected by economists, dropping to its lowest level in nearly 45 years as the labor market tightened further.

Among stocks, Twitter jumped 20 percent after it reported its first quarterly net profit and topped Wall Street targets as video ad sales rose.

Tesla was down 3.2 percent after the electric automaker said spending could rise in 2018.

Declining issues outnumbered advancers on the NYSE by 2,072 to 681. On the Nasdaq, 1,950 issues fell and 780 advanced.

The S&P 500 index showed no new 52-week highs and 6 new lows, while the Nasdaq recorded 22 new highs and 38 new lows.

Europe

European shares closed in negative territory on Thursday as volatility made a brutal comeback and ended a short-lived rebound after the beginning of the week’s global sell-off.

Europe’s VSTOXX volatility index jumped to 32, its highest since the UK’s Brexit referendum, and all European bourses ended deep in the red.

Europe’s STOXX 600 share index fell 1.8 percent, France’s CAC 40 was down 2 percent and Germany’s DAX lost 2.6 percent.

In Frankfurt, growth-sensitive stocks such as Volkswagen or BASF, lost 3.8 percent and 3.3 percent respectively. The pan-European index is down more than 4 percent after equities took a battering worldwide this week.

Results from ABB, a bellwether of European heavy industry, failed to cheer investors who have loaded up on cyclical stocks since December in the hope of a profit boost from synchronized global growth. The stock plunged 6.7 percent.

M&A headlines and positive trading updates, notably from banks, failed to maintain Thursday’s rally.

Danish telecoms company TDC led the STOXX 600, shooting up by nearly 18 percent – its best day since June 2007 – after it rejected a takeover approach from Macquarie and three Danish pension funds.

Swiss Re’s shares were up 2.1 percent after the reinsurer said it was in talks with Japan’s SoftBank to sell a minority stake.

Financials limited the damage, with strong earnings from UniCredit and Societe Generale.

SocGen’s shares rose by 1.9 percent after the bank reported forecastbeating results despite a quarterly drop in profit.

Italy’s UniCredit rose 2.1 percent after profit topped forecasts and Banco BPM was up 0.3 percent after the bank raised its target for shedding bad loans.

France’s Pernod Ricard, up 2.1 percent after it raised its profit goals, were among the other companies to gain after earnings statements.

After this week’s sharp correction, valuations of the STOXX 600 have fallen back below their one-year average.

Asia

Most major Asian markets rose on Thursday following the week’s sharp losses but traders are struggling to get a firm footing in a volatile February, spooked by heavy selling and warnings of more upheaval to come.

Tokyo ended 1.1 percent higher while Hong Kong was 0.4 percent up having fallen around eight percent over the previous five sessions.

Sydney was 0.2 percent higher while Seoul and Singapore each gained 0.5 percent. Kuala Lumpur and Bangkok also advanced.

However, Shanghai tumbled 1.4 percent despite data showing Chinese imports smashed expectations and exports were supported by strong global demand.

Wellington, Taipei, Manila and Mumbai all fell.

The drop in crude prices again hit energy firms, with CNOOC, PetroChina and Sinopec diving in Hong Kong, and Woodside Petroleum sharply lower in Tokyo.

Key figures around 0820 GMT Tokyo - Nikkei 225: UP 1.1 percent at 21,890.86 (close)

Hong Kong - Hang Seng: UP 0.4 percent at 30,451.27 (close)

Shanghai - Composite: DOWN 1.4 percent at 3,262.05 (close)

Dollar/yen: UP at 109.56 yen from 109.28 yen

Oil

Oil prices touched their lowest in six weeks on Thursday after data showed US crude output had reached record highs and the North Sea’s largest crude pipeline reopened following an outage.

A stronger dollar, on track for its biggest weekly rise since November 2016, was adding pressure by making it more profitable for holders of other currencies to sell dollar-denominated assets such as oil.

Brent crude futures were last down 29 cents at $65.22 a barrel by 1453 GMT, having hit a 2018 low of $64.68 earlier. US futures eased 2 cents to $61.77 a barrel.

Brent futures have lost about 8 percent since reaching a four-year high above $71 in late January.

Oil prices were dented by the restart of the Forties pipeline in the North Sea, following an outage the previous day that had sent prices higher when it was announced.

The pipeline, which carries around a quarter of all North Sea crude output and roughly a third of Britain’s offshore natural gas production, shut on Wednesday for the second time in two months after a valve closure at a Scottish facility.

Gold

Gold prices were driven lower for a third day on Thursday by a strong dollar and rising US bond yields.

A global stock market selloff has driven investors to the relative safety of the dollar, lifting it from threeyear lows and pushing gold from an 18-month high reached in late January.

Inflation-linked US 10-year bond yields meanwhile rose to two-year highs after a hawkish Bank of England statement fuelled expectations that central banks around the world will raise interest rates.

A stronger dollar makes dollardenominated bullion moreexpensive for users of other currencies, while higher real yields reduce the attraction of non-yielding gold.

Spot gold hit a one-month low and was down 0.4 percent at $1,313.14 an ounce at 1525 GMT. US gold futures for April delivery were 0.1 percent higher at $1,315.70.

Momentum indicators suggested gold would fall to $1,300, said analysts at ScotiaMocatta, with technical support at $1,303, the 50-day moving average.

Holdings of gold in exchangetraded funds tracked by Reuters have declined more than 1 percent this month and this week saw the biggest one-day fall since July, helping pull prices lower.