Global Stocks Stall as Yields, Oil Reach New Heights
By Riva Gold
-- Brent crude hits $80 a barrel
-- Treasury yields up from near seven-year high
-- Italian assets remain under pressure
Global stocks mostly struggled for traction Thursday as government bond yields and oil prices climbed to multiyear highs.
Futures pointed to a 0.2% opening loss for the S&P 500, with shares of Cisco Systems among the biggest decliners in U.S. premarket trading after the company offered disappointing guidance for the current quarter.
Stocks in Hong Kong and Australia closed lower, while the Stoxx Europe 600 edged up 0.2% in the early afternoon as shares of Ocado Group jumped 57% after the U.K. online supermarket said that it has agreed to sell a 5% stake to Kroger and that it would provide its delivery technology to the U.S. grocer.
Energy companies were a bright spot thanks to a rise in oil prices, with shares of Royal Dutch Shell, Total and Repsol each up around 1%. Brent crude oil rose 0.9% to $80 a barrel on Thursday -- a 3 1/2 -year high -- in the aftermath of Washington's decision to reinstate sanctions on Iran.
Rising commodity prices have contributed to higher inflation expectations and thereby pressured the bond market. Yields on 10-year Treasurys rose Thursday to 3.112% from 3.093% late Wednesday, which was the highest settlement since 2011.
Some investors worry that higher yields and higher interest rates could hurt stocks by raising borrowing costs for companies and making bonds look more attractive in comparison.
"We think 3.25% would be the number that would cause us to lean a little bit more forward in our chair," said Eric Freedman, chief investment officer at U.S. Bank Wealth Management. Already, more attractive yields on shorter-dated U.S. debt have prompted U.S. Bank to shift some of its investments out of the stock market and into short-term paper, he said.
Italian bonds also remained pressure Thursday, with 10-year yields climbing to 2.129% from 2.110% late Wednesday afternoon.
Political uncertainty has shaken Italian assets, hitting the country's stocks and bonds following media reports of a draft government program that proposed the introduction of procedures within the eurozone to allow countries to quit the euro.
The 5 Star Movement and League said Wednesday that more recent discussions didn't put Italy's membership in the common currency into question.
"If 5 Star are able to take forward their program, it does bring questions about the future of the euro in its current format," said Paul Markham, a portfolio manager at Newton Investment Management. But they may not be able to do so, he added, and "I think the repurchasing firepower of the European Central Bank will be used as a safety net for Italy," he said.
Italy's benchmark FTSE MIB Index on Thursday alternated between gains and losses. The index was last up 0.2% after shedding 2.3% on Wednesday.
Earlier, Japan's Nikkei rose 0.5%, supported by a recent decline the yen, which tends to boost earnings of multinationals translating earnings from abroad. The dollar was last up 0.3% against the yen for the day and up 1.3% against the Japanese currency for the week.
Shares elsewhere in Asia mostly ended the day lower. Hong Kong's Hang Seng fell 0.5% despite a rebound in shares of Tencent Holdings, Asia's most valuable company. Shares of the Chinese tech giant rose 3.7% after its quarterly results beat expectations with a 61% increase in net profit.
Joanne Chiu and Maryam Cockar contributed to this article.
Write to Riva Gold at [email protected]