European equities fell, tracking markets lower in Asia, as concern about local government debt in China and hawkish language from a US central banker put traders in a risk-off mood.
(Bloomberg) — European equities fell, tracking markets lower in Asia, as concern about local government debt in China and hawkish language from a US central banker put traders in a risk-off mood.
The Stoxx 600 index dropped 0.8%, snapping two days of gains and trimming its fourth weekly advance in five. US equity futures edged lower and the 10-year Treasury yield near 4%. The British pound led gains among G-10 currencies against the dollar after the strongest quarterly growth in more than a year.
Markets were fragile after San Francisco Reserve Bank President Mary Daly said the Fed still has “more work to do” to combat rising prices, damping the impact of broadly positive inflation data on Thursday. In China, the government moved to manage local government debt, a key threat to the nation’s financial stability, while property developer Country Garden Holdings Co. predicted a multibillion-dollar loss for the first half of this year. The MSCI Asia Pacific Index dropped to the lowest level in a month.
“There may be other accidents waiting to happen as a result of sharply higher rates that we just haven’t seen come through yet,” said Richard Flax, chief investment officer at European digital wealth manager Moneyfarm. “Policymakers seem to be trying to signal to investors that they may be too optimistic to be looking for early rate cuts.”
This week has seen a marked move into haven assets and out of stocks, according to Bank of America Corp. strategists. Cash funds attracted $20.5 billion of inflows, while investors poured $6.9 billion into bonds in the week through August 9, according to Bank of America, citing data from EPFR Global. In the meantime, US stocks had their first outflow in three weeks at $1.6 billion.
BofA Says Investors Flock to Cash; Treasuries Track Record Flows
In currencies, the Bloomberg Dollar Spot Index was flat after rising Thursday. The greenback is set for a fourth week of gains, the longest such streak since February.
“Our view that USD upside is likely limited still holds,” said Christopher Wong, FX strategist at Oversea Chinese Banking Corp. The point of inflection “could come when the market narrative shifts into trading more rate cuts. And it could be several months out, dependent on how data pans out,” Wong added.
In commodities, oil was on track to end the week little changed, after touching the highest since November in recent days, as the International Energy Agency’s monthly snapshot pointed to a robust market.
Corporate Highlights:
- Virgin Galactic Holdings Inc. gained after the company said it aims to launch its next space tourist mission in early September.
- Oaktree Capital Management is looking to raise more than $18 billion in what would be the largest-ever private credit fund, according to people with knowledge of the matter.
- UBS Group AG decided to end an agreement with the Swiss government to cover losses it could incur from the rescue of Credit Suisse, a sign that the mammoth integration is on track and the stricken lender’s assets might be less troublesome than initially feared.
Key events this week:
- UK industrial production, GDP, Friday
- US University of Michigan consumer sentiment, PPI, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.8% as of 11:55 a.m. London time
- S&P 500 futures fell 0.1%
- Nasdaq 100 futures fell 0.2%
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index fell 0.7%
- The MSCI Emerging Markets Index fell 0.9%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.0994
- The Japanese yen rose 0.1% to 144.57 per dollar
- The offshore yuan fell 0.2% to 7.2544 per dollar
- The British pound rose 0.3% to $1.2715
Cryptocurrencies
- Bitcoin fell 0.2% to $29,362.52
- Ether fell 0.1% to $1,846.49
Bonds
- The yield on 10-year Treasuries was little changed at 4.10%
- Germany’s 10-year yield advanced six basis points to 2.59%
- Britain’s 10-year yield advanced 11 basis points to 4.47%
Commodities
- Brent crude rose 0.3% to $86.66 a barrel
- Spot gold rose 0.3% to $1,917.71 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Joe Easton.
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