(Bloomberg) — Stocks deepened a slump, unraveling more of this year’s high-powered rally as Treasuries added to their decline. Investors braced for another interest rate increase from the Bank of England later Thursday.
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Treasuries extended their selloff, pushing 10-year yields to around 4.15%, the highest this year, following hot labor-market data and a ramp-up in US government debt issuance.
“A selloff at the long end of the US Treasury market has cast a shadow over risk assets and hit cyclical currencies,” wrote ING Groep NV strategists including Chris Turner.
European stocks fell 1% as they retreated for a third day. US contracts signaled further weakness after the worst session in three months for the S&P 500. The US benchmark slipped 1.4% Wednesday while the Nasdaq 100 fell 2.2%, sending the VIX index, known as Wall Street’s “fear gauge” to the highest since May. Asian stocks also headed for a third daily decline.
In the latest earnings news, Infineon Technologies AG plunged as much as 10% after disappointing forecasts from the German chipmaker, leading a decline in European technology shares. Deutsche Lufthansa AG dropped amid concerns over debt and higher costs.
Markets are leaning toward a 25 basis points increase by the BOE, but traders haven’t fully ruled out a 50-point hike as policymakers seek to subdue UK inflation that’s four times the official target. There’s also speculation the BOE will surprise economists by signaling an increase to the pace of bond sales as it looks to reduce its outsized footprint in the market.
“The moderation in UK consumer prices has lagged behind the rest of Europe, which may prompt the BOE to signal that it will maintain a hawkish stance in the remaining months of the year,” economists at Rand Merchant Bank in Johannesburg said in a client note.
The dollar strengthened, while the yen steadied after weakening as the Bank of Japan announced an unscheduled round of bond buying, the second intervention since the more flexible yield curve control regime unveiled last week.
The selling in Treasuries was helped along by private payrolls data that showed US companies added 324,000 workers last month, beating the consensus forecast of 190,000. Investors also reacted to news that the Treasury will issue $103 billion of securities next week, slightly more than forecast, and fresh on the heels of Fitch Ratings’ downgrade of the US.
Bill Ackman, founder and chief executive officer of Pershing Square Capital Management, said he had shorted 30-year Treasuries, which he described as overbought from a supply and demand perspective.
Busy Earnings
On a busy day of corporate results, Societe Generale SA rose as the French lender beat most analyst estimates. Anheuser Busch InBev NV gained as the world’s largest brewer reported earnings that beat expectations.
Investors will be keeping a keen eye on Apple Inc. earnings due later. The iPhone maker is expected to report its third consecutive year-over-year revenue decline. Amazon.com Inc. will also report quarterly results, with investors and analysts closely watching its cloud computing business.
US results on Wednesday included PayPal Holdings Inc. revealing a key measure of profits shrank in the second quarter as the company had to set aside more money to cover souring loans it has made to merchants. Shopify Inc. reported sales and profit for the second quarter that beat analyst expectations.
In China, Evergrande Property Services Group Ltd., a unit of the highly indebted developer, slid by about half in Hong Kong as the company resumed trading for the first time since March 2022. Pressure on China’s property sector weighed on the country’s junk bonds, which fell for a second day. Superconductor-related shares in China also declined after a sharp rally over the past week.
Key events this week:
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Eurozone S&P Global Eurozone Services PMI, PPI, Thursday
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Bank of England rate decision, Thursday
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US initial jobless claims, productivity, factory orders, ISM Services, Thursday
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Eurozone retail sales, Friday
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US unemployment rate, non-farm payrolls, Friday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 1% as of 8:44 a.m. London time
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S&P 500 futures fell 0.5%
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Nasdaq 100 futures fell 0.8%
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Futures on the Dow Jones Industrial Average fell 0.3%
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The MSCI Asia Pacific Index fell 0.7%
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The MSCI Emerging Markets Index fell 0.4%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro fell 0.1% to $1.0923
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The Japanese yen rose 0.2% to 143.01 per dollar
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The offshore yuan was little changed at 7.2004 per dollar
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The British pound was little changed at $1.2700
Cryptocurrencies
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Bitcoin fell 0.2% to $29,048.03
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Ether fell 0.4% to $1,833.4
Bonds
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The yield on 10-year Treasuries advanced seven basis points to 4.15%
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Germany’s 10-year yield advanced four basis points to 2.57%
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Britain’s 10-year yield advanced five basis points to 4.45%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson.
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