European shares retreated for a third day as global bonds deepened their slump on concern about higher US interest rates and investors watched for fresh signs of weakness in China.
The Stoxx 600 slipped 0.4% at the open, while US equity futures edged higher after Wednesday’s drop on Wall Street. The US 10-year yield rose as much as six basis points to 4.31% on Thursday, taking it to around three basis points away from last October’s peak, which was the highest since 2007.
Minutes from the US Federal Reserve’s July meeting fanned concerns the central bank will continue to raise interest rates to quell inflation, driving bonds down even as higher yields draw in buyers. Jitters over China’s economy and its perilous debt burden persisted, with one of the nation’s biggest shadow banks said to be planning to restructure its liabilities, hiring KPMG LLP to conduct an audit of its balance sheet.
“Markets are taking the prospect of another hike from the Fed increasingly seriously, with futures now pricing in a 45% chance of a further hike by the November meeting,” Deutsche Bank AG strategist Jim Reid wrote. “But as well as the upcoming decisions, it’s clear that investors are adjusting to the fact that rates could remain at a higher level for some time.”
China ramped up its efforts to stem losses in its currency on Thursday by offering the most forceful guidance since October through its daily reference rate for the managed currency. The offshore yuan slipped against the greenback.
The nation’s economic issues now present “a headwind — not just to the US economy, but to the global economy,” US Deputy Treasury Secretary Wally Adeyemo said.
Japan’s 20-year bond yield surged after an auction of debt drew tepid investor demand. The yen traded around its 2023 low — near levels that previously triggered Japan’s intervention in September.
Shares in Japan, Australia and South Korea all echoed the drop in the US. Chinese stocks pared early declines, meanwhile, helped along by resilience for technology shares. A region-wide equity gauge slipped to levels last seen in March, putting it on pace for its biggest two-day drop since October.
“The Fed has no choice but to keep it up until they are convinced that inflationary expectations are quashed,” Steve Sosnick, chief strategist at Interactive Brokers, said after the minutes were released. “Doing otherwise risks some of the embers reigniting.”
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.3% as of 8:07 a.m. London time
- S&P 500 futures rose 0.2%
- Nasdaq 100 futures rose 0.2%
- Futures on the Dow Jones Industrial Average rose 0.2%
- The MSCI Asia Pacific Index fell 0.4%
- The MSCI Emerging Markets Index was little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0881
- The Japanese yen was little changed at 146.29 per dollar
- The offshore yuan was little changed at 7.3309 per dollar
- The British pound was little changed at $1.2736
Cryptocurrencies
- Bitcoin fell 1% to $28,637.75
- Ether fell 0.4% to $1,800.22
Bonds
- The yield on 10-year Treasuries advanced four basis points to 4.29%
- Germany’s 10-year yield advanced four basis points to 2.69%
- Britain’s 10-year yield advanced five basis points to 4.70%
Commodities
- Brent crude rose 0.4% to $83.80 a barrel
- Spot gold rose 0.3% to $1 896.66 an ounce
© 2023 Bloomberg
