Bond yields tumbled around the world and equities slumped as a raft of news on China, Italy and US banks fanned worries about the financial system and global economy.
(Bloomberg) — Bond yields tumbled around the world and equities slumped as a raft of news on China, Italy and US banks fanned worries about the financial system and global economy.
Across markets, there was a broad move into safety. The yield on the 10-year Treasury dropped 10 basis points and the equivalent rates in Germany fell 15 basis points. A gauge of the dollar climbed about 0.6%.
Shares of American banks dropped in the wake of Moody’s Investors Service ratings cuts on 10 small and midsized lenders. Lenders posted the steepest losses in Europe after Italy announced an unexpected tax on windfall profits, sending shares of UniCredit SpA and Intesa Sanpaolo SpA down more than 7%.
Investor sentiment also took a hit after China released more data that showed its economic engine is sputtering. Exports plunged by the most since early 2020, the beginning of the Covid pandemic, and imports contracted last month. The Hang Seng China Enterprises Index and a gauge of European mining shares fell about 2%. Commodities prices retreated, with oil and copper losing more than 2%.
Corporate Highlights:
- Bancorp and Bank of New York Mellon both slid more than 3%, while Truist Financial Corp. fell 2.8%. PNC was down 2.2%, and Capital One Financial Corp. lost 2%. Citizens Financial Group Inc. declined 3.2%, and Ally Financial Inc. dropped 3%.
- Novo Nordisk hit a record high after a study of blockbuster obesity medicine Wegovy found that the drug reduced the risk of heart attacks and strokes.
- Dish Network Corp. is proposing to buy EchoStar Corp., the satellite network operator it once owned.
China’s disappointing economic recovery is being felt acutely among exporting nations in the developing world.
The MSCI Emerging Market Index of stocks headed for the lowest close in almost four weeks and looked to breach the support level at its 50-day moving average. Its currency-index counterpart also traded at the weakest level since July 10, with the South Korean won and Malaysian ringgit among the worst performers.
“Reduced demand for raw materials and commodities due to its economic slowdown is likely to lead to a decrease in global commodity prices,” according to Nigel Green, CEO of DeVere Group. “Those countries heavily reliant on commodity exports would then experience economic hardships as their revenues decline.”
The Treasury auction later today and US inflation data on Thursday are the next pressure points for the market. A $103 billion deluge of 3-, 10- and 30-year auctions will hit before the week is out — up $7 billion from the May slate. Demand for the varying maturities may help shape the yield curve: recently longer-term yields have climbed relative to short-term ones as investors bet that the end of the Federal Reserve rate hiking cycle would coincide with a recession.
“Incoming US auction supply will be a key testing point for markets,” said Pooja Kumra, rates strategist at Toronto-Dominion Bank. “But we don’t see much to argue for this bear steepening move to continue. It should see some pause now.”
Fears about the health of the US economy — and its banks — have surfaced after 11 rate increases. The warning by Moody’s, which cited risks tied to commercial real estate, is likely to renew focus on signs stress in the industry as rising interest rates force firms to pay more for deposits and bump up the cost of funding from alternative sources.
Even so, banks are a reliable profit center for governments seeking more revenue. Out of the European lenders which reported this season, 69% of them beat consensus estimates, according to data compiled by Bloomberg Intelligence. That’s the highest beat rate among all sectors on the MSCI Europe this season.
Key events this week:
- US wholesale inventories, trade, Tuesday
- Philadelphia Fed President Patrick Harker speaks, Tuesday
- China CPI, PPI, money supply, new yuan loans and aggregate financing, Wednesday
- India rate decision, Thursday
- US initial jobless claims, CPI, Thursday
- Atlanta Fed President Raphael Bostic pre-recorded remarks for employment webinar, Thursday
- UK industrial production, GDP, Friday
- US University of Michigan consumer sentiment, PPI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.8% as of 8:04 a.m. New York time
- Nasdaq 100 futures fell 0.8%
- Futures on the Dow Jones Industrial Average fell 0.7%
- The Stoxx Europe 600 fell 0.6%
- The MSCI World index fell 0.4%
Currencies
- The Bloomberg Dollar Spot Index rose 0.6%
- The euro fell 0.5% to $1.0945
- The British pound fell 0.6% to $1.2701
- The Japanese yen fell 0.4% to 143.02 per dollar
Cryptocurrencies
- Bitcoin rose 0.7% to $29,349.96
- Ether rose 0.5% to $1,834.26
Bonds
- The yield on 10-year Treasuries declined 10 basis points to 3.99%
- Germany’s 10-year yield declined 15 basis points to 2.45%
- Britain’s 10-year yield declined 12 basis points to 4.34%
Commodities
- West Texas Intermediate crude fell 2.3% to $80.07 a barrel
- Gold futures fell 0.4% to $1,963 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar, Robert Brand, Daniel Curtis and Denitsa Tsekova.
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