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.
The Stoxx Europe 600 edged up 0.1% midday after stocks in Hong Kong closed lower, while futures pointed to a 0.2% opening decline for the S&P 500.
Shares of energy companies were a bright spot in global equity markets thanks to a rise in oil prices. Brent crude oil was last up 0.9% at $80 a barrel after settling at its highest since November 2014 on Wednesday when the U.S. Energy Information Administration reported larger declines in oil inventories than expected.
Rising commodity prices have also helped push up inflation expectations and thereby pressured the bond market. Yields, which fall as bond prices rise, on 10-year Treasurys rose Thursday to 3.105% from 3.093% late Wednesday, the highest settlement since 2011.
Some investors worry that higher yields and higher interest rates could pressure 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 short-term U.S. debt has prompted U.S. Bank to shift some of its investments out of the stock market and into short-term paper, he said.
The spread between Italian and German bond yields meanwhile widened on Thursday after growing Wednesday by the most since the Brexit vote in June 2016. Yields on 10-year Italian bonds climbed to 2.180% Thursday 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 rose sharply in early trading but reversed course late morning to fall 0.3% after shedding 2.3% in the previous session.
Elsewhere in Europe, shares of Altice rose 10% after its first-quarter results beat expectations, while shares in Ocado Group PLC jumped 44% after the U.K. online supermarket said it has agreed to sell a 5% stake to Kroger and to provide its delivery technology to the U.S. grocer.
Shares of Cisco Systems led declines in U.S. pre-market trading after the company beat earnings forecasts but offered guidance that disappointed market participants.
Better-than-expected earnings reports from retailers helped lift U.S. stocks on Wednesday and retailers are expected to remain in focus Thursday with results due from Walmart, J.C. Penney and Nordstrom. U.S. retail sales figures released earlier this week suggested consumer spending would accelerate in the second quarter.
"Retailers are benefiting from pockets of strength in the domestic economy," with consumers confident enough to go out and spend, said U.S. Bank's Mr. Freedman.
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 0.2% against the yen for the day and up 1.2% against the Japanese currency for the week.
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]