World stocks are poised to end the week at six-week lows in the face of oil weakness, a spike in bond yields and expected tighter monetary policy especially in the United States.
US job growth surged more than expected in June and employers increased hours for workers, signs of labour market strength that could keep the Federal Reserve on course for a third interest rate increase this year despite mild inflation.
However, stubbornly sluggish wage growth remains a concern for investors on worries over whether spending by US consumers will be strong enough to back the United States Federal Reserve’s intention to further tighten policy.
Bets that the world’s major central banks are moving closer to unwinding ultra-loose monetary policies have roiled markets and European Central Bank minutes released on Wednesday indicate its policymakers are open to further steps.
This sent German government bond yields to 18-month highs, lifted the euro and weighed on stocks.
European bonds steadied yesterday though some investors see more room for yields to rise.
Bond markets are increasingly affecting FX and equity markets, the strategists said, drawing parallels with moves seen in 2013 during the so-called “taper tantrum,” when US Fed signals about withdrawing liquidity hit markets.
MSCI’s gauge of global stocks was at its lowest since late May’s record highs and down 0.6 per cent for the week. European shares fell 0.3 percent led lower by financials. Stock futures on Wall Street pointed to a steady open after a tech-led swoon pulled major US benchmarks sharply lower overnight.
The dollar rose against a basket of major currencies and hit a seven-week high against the yen after the Bank of Japan increased its government bond buying, expanding monetary policy when other central banks are moving towards tightening.
The BOJ said it would purchase an unlimited amount of bonds as it sought to put a lid on domestic interest rates pushed higher by the broad sell-off in developed market bonds.
In commodity markets, Brent crude futures, the international benchmark for oil prices, were trading down 1.2 per cent, at $47.55 per barrel.
Oil prices are down more than 16 per cent this year, muddying the outlook for inflation expectations globally.
Weakness in crude prices caused a drag on UK bluechips, though a slide in sterling after disappointing economic data helped the exporter-heavy index outperform the region on the day.