U.S. Treasury yields were on the rise, approaching the 5% mark on Thursday. This uptick in yields was causing global stock markets to drop to their lowest levels in several months. This all happened during a week filled with important corporate earnings reports, and we had the European Central Bank (ECB) meeting and the release of U.S. GDP data still ahead for the day.
The bond market had a few causes for concern. Firstly, there was a positive note with an increase in U.S. home sales. However, the market also reacted to an auction of five-year notes, which showed weaker demand than expected. This combination of factors pushed the yield on the U.S. 10-year Treasury note up by 11 basis points on Wednesday.
The trend we saw on Thursday continued, and the key interest rate reached 4.989%. It was getting close to the 5.021% mark, which was the highest it had been since 2007 earlier in the week.
Kiran Ganesh, who is the global head of investment communications at UBS Wealth Management, mentioned, “The Treasury market is clearly a significant concern right now. The recent increase in yields had a negative impact on the stock market, and how it responds to the data we get this week will be a crucial factor influencing global markets.”
The U.S. third-quarter GDP, which is coming out later on Thursday, isn’t expected to ease concerns in the bond market. This report is likely to reveal that the U.S. economy had its strongest quarterly growth in two years. This robust growth won’t do anything to change the belief that the Federal Reserve will maintain high-interest rates for an extended period.
Looking ahead to Friday, the personal consumption expenditure (PCE) price index is important because it’s the measure of inflation that the Federal Reserve prefers. Also, there’s the European Central Bank meeting on Thursday, where they are anticipated to break a 15-month streak of interest rate increases but still keep rates at historically high levels.
Focus on Earnings
The STOXX index in Europe dropped 0.8%, coming close to the seven-month lows seen earlier this week. Meanwhile, MSCI’s broadest index of Asia-Pacific shares outside Japan hit an 11-month low.
In the United States, Nasdaq futures fell by 1.2%, and S&P 500 futures were down by 0.7%, despite all three major U.S. stock indices closing significantly lower on Wednesday.
Kiran Ganesh identified three primary factors contributing to the stock market decline, stating, “There are three main reasons why stocks are falling. Firstly, the rising interest rates suggest that they might have to stay high for an extended period, which isn’t favorable for the economy in the long run. Secondly, high yields are competing with the stock market for investor attention. Lastly, the start of the earnings season has had mixed results, with a generally negative trend.”
On Wednesday, European banks took the spotlight in the earnings department. Standard Chartered saw a significant drop of more than 17% at one point, while BNP Paribas fell by 4.5%, and Swedbank by 7.5%, all following their earnings reports.
The broader European banking index experienced a decline of up to 2.4%, marking its lowest point in four months. Interestingly, Spain was the only exception, showing some positive movement.
Over in the United States, technology companies were also revealing their financial results. Alphabet, the parent company of Google, had its worst trading day since March 2020, with its shares falling by 9.5%. Investors were disappointed by the slower growth in its cloud division.
Meta Platforms, the parent company of Facebook, saw a 2.6% drop in premarket trading, even though its third-quarter results exceeded expectations. However, Meta mentioned that its 2024 spending plans were higher than estimated, and it also indicated that the conflict in Israel and Gaza might affect its fourth-quarter sales.
Amazon.com’s stock dropped by 1.4% just before they released their earnings report after the markets closed on Thursday.
In the world of currency exchange, the dollar index reached a two-week high at 106.88. This boost was due to higher interest rates. At the same time, the yen weakened, going beyond 150 yen per dollar. This is a level that has made traders wary and could lead to actions to stabilize the Japanese currency. The yen fell to a 10-month low, reaching 150.78 yen per dollar.
Oil prices declined for a couple of reasons: an increase in U.S. crude stockpiles and the stronger dollar. However, the ongoing conflict in the Middle East remained a significant concern for traders. U.S. crude oil fell by 1.73% to $83.88 per barrel, and Brent crude dropped by 1.36% to $88.91 per barrel.
On the other hand, the price of spot gold rose by 0.36% to reach approximately $1,986.6 per ounce. This rise in gold prices was testing the levels seen during the five-month high reached last week.
