Stock Market Overview
Government bond prices came under pressure, pushing up benchmark yields toward key levels, as participants braced for policy decisions this week from three of the world’s most important central banks.
Japan once again provided the main driving force as its 10-year sovereign yield touched the highest point since February 2017 — prompting the country’s central bank to intervene in the market for the third time in a week.
Speculation has been rife in recent days that the Bank of Japan could announce a policy tweak when its two-day meeting concludes on Tuesday.
Deutsche Bank’s Brexit shift. Germany’s largest lender has moved almost half of its euro clearing activities from London to Frankfurt, the FT can reveal. It is the latest sign of European cities winning financial business from the UK ahead of Brexit.
Meanwhile, the yield on the 10-year US Treasury inched back towards the 3 per cent milestone ahead of the Federal Reserve’s rate decision on Wednesday — although few in the markets expect any action from the US central bank.
The 10-year German Bund yield moved towards 0.5 per cent and that on the 10-year UK gilt hit a six-week high.
“Spillover from European bonds is weighing [on Treasuries] with rates sharply higher across the pond amid worries over a shift in the BoJ’s stance and a much anticipated Bank of England hike on Thursday,” said analysts at Action Economics.
Samuel Tombs at Pantheon Macroeconomics said: “The [UK] Monetary Policy Committee will likely raise Bank Rate at its meeting on August 2, despite the latest activity and wage data failing to make a strong case for tighter monetary policy.”
Sterling rose moderately against the dollar while the euro pushed back above the $1.17 level, despite weak German inflation data. The single currency fell last week after Mario Draghi, European Central Bank president, reiterated the bank’s dovish forward guidance.
On the equity front, the sell-off that hit US technology stocks towards the end of last week continued, with Twitter, Netflix and Facebook all down sharply again — helping to push the Nasdaq Composite to its lowest for three weeks.
The index closed at a record high last Wednesday.
The energy sector was a brighter spot on Wall Street as lingering caution over the outlook for supply helped push Brent oil towards $75 a barrel.
Fixed income and forex
Japan’s 10-year government bond yield ended at 0.102 per cent, according to Reuters data, up from 0.099 per cent on Friday — having earlier touched 0.113 per cent.
That prompted the Bank of Japan to intervene once again to buy bonds as part of its yield curve management policy.
In Europe, the 10-year Bund yield closed at 0.452 per cent, up 4.3 basis points, while the 10-year UK gilt yield rose 6.4bp to 1.344 per cent
The dollar index was down 0.4 per cent as the euro added 0.5 per cent to $1.1713. Sterling was up 0.3 per cent at $1.3137 while the US currency was little changed versus the yen at ¥110.94.
By midday in New York, the S&P 500 was down 0.6 per cent at a one-week low of 2,801, while the Dow Jones Industrial Average was off 0.5 per cent.
Nasdaq Composite was 1.5 per cent lower — leaving it 4 per cent shy of last week’s record close — and the Faang+ index moved into correction territory.
Across the Atlantic, the Stoxx 600 Europe index fell 0.3 per cent, with Frankfurt’s Xetra Dax shedding 0.5 per cent and the FTSE 100 in London closing flat.
Japan’s Topix index slipped 0.4 per cent, while the Hang Seng in Hong Kong shed 0.3 per cent and the CSI 300 index in China inched down 0.2 per cent.
Brent oil was 1 per cent at $75.03 — its first break above $75 in two weeks — after trading between $74.14 and $75.27. US West Texas Intermediate was up 2 per cent at $70.03.
Gold was flat at $1,223 an ounce.
Contracts to buy previously owned homes rose in June, according to data released on Monday by the National Association of Realtors (NAR).
NAR said its pending home sales index, which measures signed contracts for homes where transactions have not yet closed, increased 0.9% to a reading of 106.9 after falling by 0.5% in the previous month.
Economists had forecast pending home sales rising just 0.4% last month.
Despite last month’s increase, contract signings are still down 2.5% on an annual basis.