Stocks slump, bond yields firm as yen continues to slide

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  • Crude oil prices up nearly 2%
  • Government bond yields hit multi-year highs
  • The yen slips below 150 per dollar

LONDON, Oct 20 (Reuters) – Stocks tumbled and bond yields firmed on Thursday as impending central bank rate meetings cast a shadow on largely resilient corporate earnings so far, which has not failed to dissipate investor sentiment.

The strong dollar continued to dominate currency markets, with the yen falling to its lowest level in 32 years against the greenback. Investors braced for intervention as the Japanese currency fell below 150 for the first time since 1990.

Yields on 10-year US Treasuries hit a 14-year high, while yields on 2-year German government bonds hit their highest level since December 2008.

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“The economy over the next 12 months is feared to be extraordinarily difficult, with a slightly pessimistic mood on corporate earnings,” said Mike Hewson, chief market analyst at CMC Markets.

Investors were bracing for big anticipated rate hikes from the European Central Bank next week, and the US Federal Reserve and Bank of England the following week, Hewson said.

The MSCI All Country Stock Index (.MIWD00000PUS) fell 0.2%, adding to its 25% decline so far this year, reversing the gains seen in 2021.

In Europe, the STOXX (.STOXX) index of 600 companies fell 0.5%, down nearly 20% for the year so far, as disappointing results from the chip equipment company BE Semiconductor and telecommunications company Nokia fueled fears of an economic slowdown.

Eren Osman, managing director of wealth management at Arbuthnot Latham & Co, said earnings so far in the US and elsewhere have shown resilience as many companies beat expectations.

But earnings are expected to fall next year, which, along with expected interest rate hikes in the United States and elsewhere, is already largely priced into markets, Osman said.

“Once we start to see ISM manufacturing data start to decline, markets will have some confidence that we’ve seen the worst. A lot of people are waiting for that moment of capitulation and it might not happen,” Osman said.

Foreign flows into Japanese equities

ON THE YEN INTERVENTION EVE

Asian stocks fell to their lowest level since April 2020 on Thursday as investors’ risk appetite faded after global inflation data revived fears of aggressive interest rate hikes by the Fed.

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 0.8%, leaving it down about 29% for the year.

China’s stock market (.SSEC) fell while Hong Kong stocks (.HSI) hit levels last seen during the 2008-09 global financial crisis.

On Thursday, China kept its benchmark lending rates unchanged for a second straight month as authorities delayed triggering more monetary stimulus to avoid a sharp policy divergence with other major economies.

Japanese Finance Minister Shunichi Suzuki pledged to take “appropriate measures” against excessive yen volatility.

“I think the risk of another intervention continues to be very high,” said Carol Kong, strategist at Commonwealth Bank of Australia. “It’s a matter of time before they hit the market to support the yen.”

The pound fell to $1.121 as British Prime Minister Liz Truss struggled to retain her grip on power.

“It is worth considering whether a call for a general election could actually be positive for the pound,” ING economists said in a note.

The offshore yuan fell to a record low on Thursday. It hit a low of 7.2794 to the dollar, the lowest level since data first became available in 2011, and last traded at 7.2500.

On Wednesday, Minneapolis Federal Reserve Chairman Neel Kashkari said labor market demand remained strong and underlying inflationary pressures likely hadn’t peaked yet.

The US central bank is expected to raise rates by 75 basis points for the fourth straight time at its November meeting.

The rising dollar and yields pushed gold lower, with prices remaining at a three-week low on Thursday. /GOL

Oil prices rose about $1 as investor sentiment rose after China considered reducing the length of quarantine for inbound visitors.

Brent futures for December settlement rose 1.43% to $93.76 a barrel. U.S. West Texas Intermediate crude for November delivery, which expires Thursday, rose 1.8% to $87.10 a barrel.

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Reporting by Ankur Banerjee in Singapore; Editing by Stephen Coates, Christopher Cushing and Angus MacSwan

Our standards: The Thomson Reuters Trust Principles.

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