Major stock markets fell back yesterday as a global selloff gained speed on mounting anxiety over rising US bond yields and the consequences for emerging economies, dealers said.
London and Paris stocks shed more than 1% in value while Frankfurt gave up less, but after spending most of the day in positive territory owing to a holiday on Wednesday.
London’s FTSE 100 closed 1.2% down at 7,418.34 points, Paris’ CAC 40 1.5% down at 5,410.85 points, Frankfurt’s DAX 30 0.4% down at 12,244.14 points and Milan’s FTSE MIB 0.6% down at 20,612.93 points, whereas the EURO STOXX 50 ended 0.9% down at 3,375.08 points.
The Dow and Nasdaq indices were solidly in the red in New York trading.
The dollar brushed aside other currencies except for the pound after more proof of the booming US economy sent Treasury yields surging, but Asian equities sank with more Federal Reserve rate hikes looking certain.
A forecast-busting private jobs report, a surge by the services sector and optimism in the retail market were the latest evidence that the world’s top economy is firing on all cylinders.
However, the news triggered a sell-off in haven Treasuries — a sign of confidence — sending the cost of borrowing to its highest level in seven years.
That in turn fuelled a surge in the dollar, helping it hit an 11-month high against the yen.
And if interest rates rise in developed economies, it “could potentially re-ignite the emerging market currency crisis,” noted Fawad Razaqzada an analyst at Forex.com.
“A broad based sell-off is sweeping across Europe as traders are worried about emerging market economies” that are increasingly important partners, noted David Madden, an analyst at CMC Markets in London The prospect of higher yields, or interest rates, on US government bonds could mean that emerging market countries “will be hit by higher borrowing costs, and in turn it could damage their economies,” he said.
XTB analyst David Cheetham added that as US bond yields reached multi-year highs, “this makes stocks relatively less attractive” as well.
Comments from Federal Reserve boss Jerome Powell on the strength of the US economy also boosted dollar buying.
The greenback extended Wednesday’s gains against its major peers, with easing concerns about a row between Italy and EU leaders unable to staunch a sell-off in the euro.
On oil markets both main contracts edged lower after surging higher a day earlier on the back of comments from US Secretary of State Mike Pompeo and White House National Security Advisor John Bolton regarding Iran that exacerbated worries about a supply hit from the region.
The Euronext logo is seen on the exterior of the Paris Stock Exchange. The CAC 40 closed 1.5% down at 5,410.85 points yesterday.
