LONDON
A six-day rebound in world stocks spluttered to a halt on Tuesday as bond market borrowing costs regained traction and the dollar kicked firmly off a three-year low.
The rise in bond yields put pressure on Wall Street’s main indexes when it reopens after a holiday on Monday, though there was plenty in Europe and Asia to subdue the mood anyway. The Dow Jones Industrial Average fell 145.61 points, or 0.58 per cent, to 25,073.77. The S&P 500 lost 11.56 points, or 0.423099 per cent, to 2,720.66.
Europe’s main bourses held steady, supported by softer domestic currencies but weakness across Asia, where Tokyo saw a 1 per cent drop, meant MSCI’s 47-country world share index was 0.25 per cent in the red.
The dollar meanwhile continued its rebound from three-year lows, having recovered 1.5 per cent since Friday on the view that the US currency was due a correction after a brutal sell-off in recent weeks.
US Treasury 10-year yields — the benchmark for global borrowing costs — were also on the up again and approaching 3 per cent for the first time in four years.
“I just advise caution,” Principal Global Investors’ chief global economist Bob Baur said about stocks with Wall Street futures pointed around 0.7 per cent lower.
“I’m not sure whether this (early February sell-off) was the dip to buy, there will probably be a relapse and then another relapse, before maybe around midsummer stocks make another run up.” European bond yields pushed up in line with Treasuries, with traders also pondering who might succeed Mario Draghi as European Central Bank chief next year after Spain’s economy minister was nominated for the bank’s number two job.
The choice of a southern European for ECB vice president increases the likelihood of a northerner such as ‘hawkish’ German Bundesbank governor Jens Weidmann getting Draghi’s seat, although there are already a number of Germans in top Eurozone finance posts.
Back among equities, another catalyst of the recent market upheaval, the VIX volatility index — Wall Street’s “fear gauge” — was moving higher again.
It was up to 21 per cent ahead of US trading, although that was still less than half the more than 50 level it peaked at earlier this month.
And though currency moves helped keep Europe level more broadly, banking giant HSBC and BHP, the world’s biggest miner, both had torrid days — the worst in over a year in HSBC’s case — after disappointing results.
US traders winced too as retail behemoth Walmart’s shares slumped more than 6 per cent in premarket trade after it reported a lower-than-expected quarterly profit and a sharp drop in online sales growth during the busy holiday period.
Emerging pressure
The dollar’s rebound also meant most emerging market currencies were under pressure.
South Africa’s rand and Turkey’s lira both gave back more of their recent gains, while growing concerns about fraud at India’s second-largest state-run bank sent the rupee skidding to a near three-month low.
