World shares headed for their biggest weekly fall in almost two months yesterday as investors set aside evidence of a broad global economic recovery and worried about an early end to the Federal Reserve’s stimulus.
US shares could see a slight recovery later according to stock index futures, though only after the Fed worries saw Wall Street post its largest one-day percentage drop since late June on Thursday.
The growing conviction that will scale back its bond buying next month was keeping pressure on US government bond prices in European trade, driving up yields on benchmark 10-year notes and supporting the dollar.
“Given that the 10-year US yields are headed towards three per cent, we think the general direction is for a stronger dollar,” said an FX strategist at ING.
The benchmark 10-year Treasury note rose to 2.78 per cent, edging back towards a two-year high of 2.823 per cent touched in Thursday’s volatile session.
Against a basket of major developed world currencies, the dollar was steady and traded at around 97.40 yen with the euro at $1.3340.
Emerging currencies though were struggling with ‘s rupee hitting a record lows beyond 62 per dollar, bringing its year-to-date losses to 11 percent. The Indonesian rupiah also tumbled to four-year troughs.
MSCI’s broad emerging equities index also fell for a second day, shedding 0.2 per cent. Europe’s broad index of top companies was less affected thanks to some better corporate earnings, dipping 0.1 per cent though remaining on course for its worst week this month.
MSCI’s world equity index, which tracks shares in 45 countries, was little changed overall but set for its biggest drop since late June when talk of an early cutback in the Fed’s $85 billion monthly cash injections surfaced.
The equity sell-off this week has come in the face of growing evidence that the global economy is picking up steam, which would normally support demand for stocks, making some analysts cautious about reading too much into the moves.
“We’ve seen equity markets crumble because (US Treasury) yields were going up, but they’re going down on good news,” said a senior markets analyst at Saxo Capital Markets.
Evidence of an improving US labour market and a rise in consumer prices – both pointing to a brighter economic outlook – sparked the latest selloff, and markets will be closely watching U.S housing starts for July and confidence index due later for further signs of strength.
Across the Atlantic, surprisingly strong growth in and has dragged the euro zone out of an 18-month recession and data this week on Britain’s economy has shown a recovery which is gathering momentum. (Reuters)