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Yields on the US benchmark government bond on Monday hit their highest level since 2007 as investors fretted over the outlook for interest rates ahead of a high-profile Federal Reserve conference this week.
The yield on the 10-year benchmark rose as much as 0.1 percentage points to 4.35 per cent, its highest point in 16 years, as investors boosted bets that rates would stay higher for longer. Bond yields rise when prices fall.
A succession of robust US economic data over the summer has raised doubts Fed will start cutting rates anytime soon.
The benchmark S&P 500 was flat, giving up gains from the first hour of trade. The index endured a sharp sell-off last week. The Nasdaq Composite rose 0.5 per cent, with gains for tech stocks such as Nvidia, which reports earnings this week.
Attention has turned to the closely watched Fed conference in Jackson Hole, Wyoming, later in the week, where investors hope for officials to hint at their future policy plans.
“It has been an ugly run for financial markets and investors are back to worrying about a Fed outlook, which still leaves the door open for an even less investor-friendly path forward,” said Joel Kruger, market strategist at LMAX Group.
“Throw in plenty of worry around the outlook for China ( . . . ) and it all makes for a stomach-turning backdrop market participants are being forced to contend with,” he added.
European equities made cautious gains, with the region-wide Stoxx 600 rising 0.1 per cent, while France’s Cac 40 gained 0.5 per cent and Germany’s Dax advanced 0.2 per cent.
Energy stocks led gainers in Europe, after crude oil prices strengthened as Opec+ data signalled that global supply was beginning to tighten since Saudi Arabia and Russia lowered exports.
The international benchmark Brent crude climbed 0.2 per cent to $84.94 a barrel, while US West Texas Intermediate was up 0.5 per cent at $81.67 a barrel.
The slowing economy in China was dealt another blow on Monday after the latest policy decision by the country’s central bank undershot market expectations.
The People’s Bank of China lowered its one-year loan prime rate, a reference for bank lending, by 10 basis points to 3.45 per cent but opted to keep the equivalent five-year rate steady at 4.2 per cent.
The move was the latest in a number of policy decisions that have fallen short of expectations, as economists polled by Bloomberg had unanimously projected 15bp cuts to the one-year and five-year rates.
China’s benchmark CSI 300 dropped 1.4 per cent, reaching its lowest level since November, while Hong Kong’s Hang Seng was down 1.8 per cent.
Investor calls for sweeping government support measures come at a time of heightened anxiety over China’s economy, which has struggled to regain momentum since the start of the year, when it reopened after a prolonged period of strict pandemic lockdowns.
Researchers from UBS investment bank have downgraded their forecasts for the country’s economic growth from 5.2 per cent to 4.8 per cent in 2023, citing a downturn in China’s dominant property sector, waning global demand, as well as underwhelming government stimulus measures.
“The government’s policy support has arguably been less than was indicated earlier in the year, and less than we expected”, said Tao Wang, chief China economist at UBS Investment Research.
Recent data releases have signalled that the world’s second-largest economy is slipping into deflation, while its exports have dropped and youth unemployment has soared, prompting the government to stop publishing the statistic altogether.