House prices

Government bond yields rise and European stocks fall amid soaring energy prices

Government bond yields rose and European stocks fell on Wednesday after surging energy prices, the IMF lowered economic growth expectations and New Zealand became the latest central bank to raise rates of interest.

European natural gas prices hit record highs on Tuesday, pushing government bond markets down.

The UK 10-year benchmark bond yield, which moves in the opposite direction of its price, traded at 1.138% on Wednesday morning, its highest level since May 2019.

Government bonds tend to fall when investors believe inflation or higher interest rates will erode real returns from fixed income payments.

The 10-year German Bund yield rose 0.03 percentage point to minus 0.162% on Wednesday, its highest level since June. The yield on the 10-year US Treasury bill, a benchmark for borrowing costs around the world, hit a four-month high at 1.5624%.

In stock markets, the European regional Stoxx 600 index fell 1.2 percent in early trades. London’s FTSE 100 fell 1%. In Asia, Hong Kong’s Hang Seng index fell 0.6% and Tokyo’s Nikkei 225 fell 1.1%.

Brent crude, the international benchmark for oil, rose 0.4% to $ 83 a barrel, after rising nearly 5% so far this week after natural gas shortages boosted demand, raising concerns about inflation just as the US central bank prepares to cut back on monetary stimulus in the time of the pandemic.

“The key theme that the markets are trying to understand is this combination of high inflation which is proving to be much stickier than central banks and investors anticipated, as well as slower growth,” said Anna Stupnytska, Global Macroeconomist at Fidelity International.

Investors were already expecting some moderation in economic growth after strong rebounds earlier in the year from lows caused by the 2020 pandemic, she said. “But we think the slowdown is going to be much sharper than expected due to the global energy crisis.”

Earlier on Tuesday, New Zealand’s central bank responded to soaring house prices and consumer price inflation by raising its key rate by a quarter of a percentage point to 0.5%, for the first time in seven years.

This follows a similar move by Norges Bank of Norway two weeks ago, while the Bank of England signaled a shift towards tightening monetary policy by warning that inflation could exceed 4% year on year. next.

IMF director Kristalina Georgieva told an event Tuesday evening that the organization’s July forecast of 6% global growth this year would be “moderate” due to pressures from the coronavirus.

The comment could intensify concerns about stagflation as the U.S. Federal Reserve, the world’s most influential central bank, prepares to cut its $ 120 billion in monthly asset purchases that boosted financial markets during the pandemic.

Jobs data due Friday should show U.S. employers hired nearly 500,000 new workers in September, bringing the Fed closer to its maximum employment target which analysts say will pave the way for a cutback announcement in November.

In foreign currencies, the New Zealand dollar rose 0.7% against its US counterpart at $ 0.6914. The British pound fell 0.2% to $ 1.3599. The euro also weakened 0.2% to $ 1.1576.

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